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Chapter 7 Notes: Unemployment

by: Iris Son

Chapter 7 Notes: Unemployment 2105

Marketplace > Georgia State University > Economcs > 2105 > Chapter 7 Notes Unemployment
Iris Son
Brian Hunt

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Spaces are there for you to write the formulas in and any example problems
Brian Hunt
Class Notes
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This 3 page Class Notes was uploaded by Iris Son on Saturday October 17, 2015. The Class Notes belongs to 2105 at Georgia State University taught by Brian Hunt in Fall 2015. Since its upload, it has received 8 views. For similar materials see PRINCIPLES OF MACROECONOMICS in Economcs at Georgia State University.


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Date Created: 10/17/15
Macroeconomics 2105 Fall 2015 Chapter 7 Unemployment l Unemployment can never be eliminated not a bad thing 2 Unemployment rate second most important indicator of economic health 3 What Are the Maj or Reasons for Unemployment a Unemployment occurs when a worker who is not currently employed is searching for a job without success b Unemployment rate 11 the percentage of the labor force that is unemployed c 3 types of unemployment i Structural caused by a mismatch between jobs and skills as a result of a growing and evolving economy 1 2 U 5 Occurs even when economy is healthy and growing natural unemployment Temporary Creative destruction occurs when the introduction of new products and technologies leads to the end of other industries and jobs as some jobs become obsolete a Joseph Schumpeter Causes transitional problems but is often a sign of a healthy growing economy To reduce a Workers must retrain relocate or change their expectations before they can work elsewhere b Govt can enact policies such as establishing job training programs and relocation subsidies US service economy ii Frictional caused by delays in matching available jobs and workers 1 2 3 PM Occurs even when economy is healthy and growing natural unemployment Temporary People don t instantly take a new job and they might not want to take the first available job Firms don t always hire the first applicant EX college graduates spouse of a person who moves for a new job 2 causes of changes in levels of frictional unemployment a Information availability i Vast pool of information available through the intemet enables workers and companies to find one another more quickly and to make better matches with substantially lower costs ii Result lower frictional unemployment b Government policies i Any factors that lengthen the jobsearch process increase frictional unemployment ii EX unemployment compensation and govt regulations related to the hiring and firing of employees iii Unemployment insurance aka federal jobless benefits govt program that reduces hardship of j oblessness by guaranteeing that unemployed workers receive a percentage of their former income while unemployed 1 Why a Cushions economic consequences of being laid off b Provides workers time to search for new employment c Helps contain macroeconomic problems before they spread to other industries iv Incentives l Unemployment insurance also creates unintended consequences a Receiving cushion of bene ts makes some feel less inclined to look and take jobs b Workers spend more time when insured 2 Govt regulations a Hiring i Restrictions on who can and must be interviewed paperwork that must be completed for new hires additional tax documents that must be led b Firing i Mandatory severance pay written justi cation govt nes c Makes it dif cult to hire and re which increases frictional unemployment iii Cyclical caused by recessions 1 Most serious because jobs not available for many people who want to work 2 Root cause unhealthy economy Not natural 3 Duration of cyclical unemployment openended and unknown d Natural Rate of Unemployment i Zero unemployment not attainable l Cyclical unemployment can fall to zero ii Natural rate of unemployment u typical rate of unemployment that occurs when the economy is growing normally 1 Actual employment rated denoted by u 2 Actual unemployment rate can sometimes be less than the natural rate a Occurs when the economy is expanding beyond its longrun capabilities b What re the conditions i Demand for output might be so high that rms keep their factories open for an extra shift and pay overtime c When Y gt Y and u lt u resources are being used employed at levels that are not sustainable in the long run iii Full employment output Y the output level produced in the economy when the unemployment rate is equal to its natural rate no cyclical unemployment exists 1 Actual output denoted by Y real GDP 2 Unemployment rate that is above natural rate indicates cyclical unemployment a Economy is producing less than full employment output levels Y lt Y 3 Also referred as potential output or potential GDP 4 Economy cannot sustain an output greater than Y in the long run 4 What Can We Learn from the Employment Data a The Unemployment Rate 1 ii To be officially unemployed a person has to be in the labor force 1 Labor force someone who is already employed or actively seeking work 2 Not included retirees stayathome parents people in jail military personnel children under 16 fulltime students iii Released monthly iV Shortcomings of the Unemployment Rate 1 2 shortcomings a Exclusions i Discouraged workers those who are not working have looked for a job in the past 12 months and are willing to work but have not sought employment in the past 4 weeks and give up ii Underemployed workers workers who have parttime jobs but who would like to have fulltime jobs 1 NOT counted as unemployed b Does not answer who is unemployed or how long they have been out of work b Other Labor Market Indicators i Labor Force Participation Rate the portion of the population that is in the labor force 1 ii Gender and Race Statistics 1 More women working today 2 Male labor force participation has fallen but still remain more like to participate in the labor force than women a Because men liVing longer acquiring more education and spending more time helping to raise families


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