Final Topic 16 Flashcards
marginally attached to the labor force
one who did not look for a job in the preceding 4 weeks but did look for a job in the last 12 months (not in labor force category)
three categories of employment
- employment: worked for pay for any length of time during the previous week (if not ill or on vacation), or part-time work, or family-owned business work.
- unemployed: not employed but looked for a job in the previous 4 weeks.
- not in the labor force: not employed and did not look for employment in the last 4 weeks.
unemployment spell
period that someone is unemployed.
duration
length of each unemployment spell. a measure of the distress and long-term implications caused by unemployment (loss of income, loss in future earnings, loss in retirement benefits).
unemployment rate
unemployed-to-labor force
working share
employment-to-population
participation rate
labor-force-to-population
natural rate of unemployment
unemployment rate consistent with ‘full’ employment. u*
derives from frictional, seasonal, and structural reasons.
frictional unemployment
results from a matching process between workers and firms. “search and find”–>job turnovers and matching issues, (time of job announcements, interviews, hiring, paperwork, etc.).
structural unemployment
derives from the discrepancy between skills demanded by firms and skills that workers supply. (contraction of some sectors releases workers that should flow to expanding sectors, but these new sectors may require skills)
seasonal unemployment
changes in economic activities because of seasonal changes (agriculture, construction, tourism)
cyclical unemployment
rigidities in labor markets that cause employment and GDP to differ from full employment
(when Nu* and vice versa).
The difference between actual unemployment and the natural rate of unemployment is cyclical unemployment.
Okun’s Law
quantifies the negative association between economic activity and the unemployment rate.
Unemployment of US was affected by recession more than Okun’s law predicted. Why?
- Underestimation of recession
- policies and institutional framework (policy responses were delayed b/c US labor market has a history of resilience)
- Sectoral shocks and misdiagnoses (contraction in construction sector and financial sector–and US has larger financial sector. Also, geographical ‘lock-in’ effect that limited mobility of labor force in the US.)
- Credit rationing (lack of credit meant that startups were limited in funds and couldn’t hire as much to absorb the labor force released by other sectors)
- Uncertainty and expected duration of recession. (Firms decided not to hoard labor because they knew it would take longer for markets to recover.)
Costs of unemployment
- opportunities of unemployed resources.
- loss of human capital due to long-term unemployment
- negative consequences on long-term income profiles (foregone income during unemployment and potentially lower re-entry income)
- stress for government budgets (transfers, insurance programs, training programs, etc.)
- social and psychological costs (poverty, health, crime, opportunities for offspring).