Chapter 15 Notes Macroeconomics
Chapter 15 Notes Macroeconomics EC 111
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This 6 page Class Notes was uploaded by Carter Cox on Thursday March 3, 2016. The Class Notes belongs to EC 111 at University of Alabama - Tuscaloosa taught by Zirlott in Spring 2015. Since its upload, it has received 21 views. For similar materials see Principles of Macroeconomics in Economcs at University of Alabama - Tuscaloosa.
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Date Created: 03/03/16
Chapter 15 Notes Labor Force Statistics - Produced by Bureau of labor Statistics (BLS), in the US Department of Labor - Based on regular survey of 60,000 households - Based on “adult population” o The adult population is 16 years or older o Minor is below - The BLS is divided into three groups o Employed – paid employees, self employed, unpaid workers in a family business, and those not working because of a temporary absence from a job (vacation, health, seasonal) o Unemployed – people looking for work People not working who have looked for work during previous 4 weeks, also includes temporary lay offs who are waiting to be recalled to a job o Not in the Labor force- everyone not looking for a job, (minor Minors, retirees, inmates, full time students, disabled people, discouraged workers (people not looking for a job), illegal immigrants - Labor force- the total number of workers, including the employed and unemployed - U-Rate (unemployment rate)- percent of the labor force that is unemployed o 100 X (number of unemployed/ labor force) - Labor force participation rate- percent of the adult population that is in the labor force o 100 X (labor force/ adult participation) Number of Employed 139.7 million Number of unemployed 13.7 million Not in labor force 85.7 million Labor Force: employed + unemployed - 139.7 + 13.7 o 153.4 million U- Rate- 100 X (unemployed/ labor force) - 100 X (13.7/153.4) o 8.9% Population- labor force + not in labor force - 153.4 + 85.7 o 239.1 Loanable Funds- 100 X (labor force/ population) - 100 X (153.4/ 239.1) o 64.2% Labor Market Statistics for Different Groups - The BLS publishes these statistics for demographic groups within the population - These data reveal widely different labor market experiences for different groups What does the U- Rate Really Measure? - U-Rate- is not a perfect indicator of joblessness or the health of the labor market o Excludes discouraged workers o Doesn’t distinguish between full and part time workers or people working part time because full time jobs available o Some people misreport their work status in the BLS survey Called a phantom worker o It does not include workers being paid “under the table” - U rate is still a very useful barometer of the labor market and economy The Duration of Unemployment - Most unemployment’s are short o 1/3 of the unemployed have been unemployed under 5 weeks, 2/3 have been unemployed under 14 weeks o 20% have been unemployed over six months Cyclical Unemployment VS the Natural Rate - Always some type of unemployment - Natural rate of unemployment o The normal of unemployment around which the actual unemployment rate fluctuates - Cyclical o The deviation of unemployment from its natural rate o Associated with business cycle Explaining the Natural Rate: - There is always some unemployment - Frictional unemployment- time it takes to find a job o Occurs when workers spend time searching for the jobs that best suit their skills and tastes o Short term for most workers - Structural unemployment – not enough jobs to go around o Occurs when there are fewer jobs than workers o Usually longer term - Both are reasons why we have a natural rate of unemployment and are both made up of three things Job Search (Frictional) - Workers have different tastes and skills and jobs have different requirements - Job Search is the process of matching workers with appropriate jobs - Sectoral Shifts o Changes in the composition of demand across industries or regions of the country - Economy is always changing and some frictional unemployment is inevitable - Both job search and sectoral shifts are frictional Public Policy and Job Search - Government employment agencies o Provide info. About job vacancies to speed up the matching of workers with jobs - Public Training programs o Provide training to help find jobs - These things are what government can do to speed up the job search programs Unemployment Insurance - UI (unemployment insurance) o Safety net o Government program that partially protects workers incomes when they become unemployed - Ui increases frictional unemployment o People respond to incentives - Increasing or extending unemployment insurance raises frictional unemployment even more - Benefits o Reduces uncertainty of income o Gives unemployed more time to search which results in better job matches and higher productivity Explaining Structural Unemployment - Not enough jobs to go around - Occurs when wage is kept above equilibrium - 3 reason 1) Minimum wage Laws a. Min. wage may exceed the equilibrium wage for the least skilled or experienced workers causing structural unemployment b. Small part of the labor force c. Increasing the min wage raises structural unemployment by increasing the quantity supplied labor and decreasing the quantity demanded labor 2) Unions a. Bargains collectively with employers over wages, benefits, and working conditions b. Exert their market power to negotiate higher wages got workers c. When unions bargain successfully, wages and unemployment rise in that industry d. Typical union worker earns 20% higher wages and gets more benefits which is an incentive e. Examples: teachers union, and police union f. Insiders: workers who remain employed g. Outsiders are workers who lose their jobs h. Are unions good or bad? i. Unions are cartels. They raise wages above equilibrium which causes unemployment ii. Unions also counter the market power of large firms, make firms more responsive to workers concerns 3) Efficiency Wages a. Firms voluntarily pay above equilibrium to boost worker productivity b. Four reason i. Worker health- 1. This does not apply in the United States 2. This is in less developed countries, poor nutrition is a common problem. Paying Higher Wages allows workers to eat better, which makes them healthier and more productive ii. Worker turnover 1. Example: Restaurant Industry 2. Hiring and training new workers costs a lot. So paying higher wages gives them incentive to stay and reduces turnover. Wal-Mart and Starbucks both do this iii. Worker Quality 1. Offering higher wages attracts better job applicants, increases quality of the firms workforce a. Example is Nick Saban iv. Work Effort 1. Worker can work hard or be lazy. Shrikers are fired if caught Example of Structural and Frictional - Government eliminate the minimum wage o Structural - Government increase unemployment insurance benefits o Frictional but increase unemployment - A new law bans labor unions o Structural - More workers post their resumes on linkedin.com and more employers use linkedin.com to find suitable workers to hire o Reduces frictional unemployment - Sectoral shift becomes more frequent o Frictional but increase unemployment Explaining the Natural Rate of Unemployment - Consisits of o Frictional Unemployment Takes time to search for the right jobs Occurs even if there are enough jobs to go around o Structural Unemployment Wage is above equilibrium, not enough jobs to go around Due to minimum wages, labor unions, efficiency wages Chapter Summary - The unemployment rate is the percentage of those who would like to work who do not have jobs - Unemployment and labor force participation vary widely across demographic groups - The natural rate of unemployment is the normal rate of unemployment around which the actual rate fluctuates - Cyclical unemployment is the deviation of unemployment from its natural rate and is connected to short term economic fluctuations - Natural rate of unemployment include frictional and structural unemployment - Frictional unemployment occurs when workers take time to search for the right jobs - Structural unemployment occurs when above equilibrium wages result in surplus of labor o Wages laws, unions, efficiency wages
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