Lecture 15 Flashcards
Unemployment rate, labor force and labor force partication
Unemployment rate: the percent of the total number of
people in the labor force who are unemployed.
* Labor force: all workers, employed or unemployed who
are looking for work.
* Labor force participation rate: the percentage of adults
(people 16 and older) in the labor force.
Unemplyoment:Une,ployed people / labor force
labor fore = # of people actively looking for work or working / age populaiton +16 non siltituzed
Labor force participation formula:
The % of NONinsitutialized (prison) civillian population over the age of 16 who are working or actively looking for a job
Two types of unemployment and why shouldnt we aim for zero unemplyoment
There are two types of unemployments
1) Frictional (Healthy)
2) Structural
Healthy unemployment is frictional and frictional unemplyoment is the gap between someone who volutnerarily leaves thier jobs to find anohther, such as people enteirng hte workforce for the first ime and people who are reenerting the workforce
- Matching people to jobs takes time
Structural unemployment: Structural unemployment is unemployment that results when there are more people seeking jobs in a particular labor market than there are jobs available at the current wage rate.
Some causes for frictional and structural unemployment:
Differencebtween cyncially and structural unemployment
ome causes of structural unemployment:
* Minimum wages
* Labor unions (associations of workers that bargain
collectively with employers over wages, benefits, and
working conditions)
* Efficiency wages (wages that employers set above the
equilibrium rate as an incentive for better employee
performance)
* Side effects of government policies
* Mismatches between employees and employers
STRUCTURAL UNEMPLOYMENT
Cyclical unemployment represents those out of work due to a temporary contraction and can be rectified with stimulus measures.
Structural unemployment represents long-term underlying issues within an economy that leaves workers unable to compete for jobs
Jobless recovery
A jobless recovery is a period in which the real GDP growth rate is
positive but the unemployment rate is still rising.
What can interest rates do to employment rates
- Interest rate could cause hgher unemployment while fighting inflation. Because if interest rates are high it is an incentive to save money and therefore if the incentive is high enough it may not be orth havig an extra worker
- High interest rate fights inflation
Negative interest rate:
- Why cant we fight delation by negative inerst rate?
- That’s why we target two percent inflation instead of zero
- Because if the banks says give me 100$ and Ill give you 90$ next year you wont keep your money in the bank, you will take it out.
- It doesn’t work in reverse because everybody will take out their money and cause a financial collapse
Labor force paritcpaiton formula, unemployment rate
Labor force participation:
Labor Force/(Population age 16+)*100
Measuring unemployment: the unemployment rate is the percet of the labor force without a job
unemployment rate:
(Number of unemployed workers)/(Labor foce)*100
what is the employment good indcitor for (3 types of understated unemployment) :
- The unemployment rate is a good indicator of how easy or diffuclt it is to find a job given the current state of the economy:
- It can overstate the true level of unemployment
- Even if the labor market is healthy, it takes time to find the right job (Meanwhile, you’re “unemployed”)
- It can understate the true level of unemployment:
- Discouraged workers nonworking people who have given up looking for work for the time being; not considered unemployed
- Marginally attached workers: those who were available and actively looked for work recently, but are not currently looking (looked in the past months but NOT in the past 4 weeks)
- Underemployed workers: people who work part time because they cannot find full time jobs
What does minmum wage do if its above the equiblrium?
it will cause strcutural unemplomynet as there is more labor supply than labor demand
THE NATURAL RATE OF UNEMPLOYMENT
Frictional and structural unemployment are always present; they are “natural.”
- Natural unemployment = frictional unemployment + structural unemployment
Actual unemployment = natural unemployment + cyclical unemploymen
Cyclical unemployment: the deviation from the natural rate of unemployment;
Cyclical unemployment refers to unemployment that is caused by fluctuations in the business cycle, particularly the contraction phase of the cycle.
CHANGES IN THE NATURAL RATE OF
UNEMPLOYMEN
What causes it to change?
– Changes in the labor force characteristics
Changing demographics
– Changes in labor market institutions
Unions, temp agencies, and new technology
– Changes in government policies
Job-training programs
Real Wage and Real Income
-Real wage is the wage rate divided by the price level.
– Real income is income divided by the price level.
Shoe-leather costs:
the time and effort it takes you to minimize the impact of inflation on your finances.
he increased costs of transactions
caused by inflation (costs of running around when people are trying to avoid holding mone
Menu Costs, and unit of accounts costs
Menu costs: the cost of changing the listed price.
- Unit-of-account costs:
costs arising from the way
inflation makes money a
less reliable unit of
measurement.
