Lecture 3 unemployment

Macroeconomics Lecture Unemployment Chapter 28 Lecture Objectives  Describe unemployment, why it is a problem and types of unemployment  Learn how unemployment is measured  Explain reasons for natural unemployment Unemployment A situation where some people are willing and able to work, but are unable to find paid employment Why Unemployment Is a Problem? Unemployment results in  Lost incomes and production  Lost human capital Types of Unemployment There’s always some unemployment, though the u-rate fluctuates from year to year  Natural rate of unemployment: the normal rate of unemployment around which the actual unemployment rate fluctuates  Cyclical unemployment:  the deviation of unemployment from its natural rate  associated with business cycles U.S Unemployment, 1960-2007 12 percentage of labor force Unemployment rate 10 Natural rate of unemployment 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 Natural Rate of Unemployment Even when the economy is doing well, there is always some unemployment, including: Frictional unemployment  occurs when workers spend time searching for the jobs that best suit their skills and tastes  short-term for most workers Structural unemployment  occurs when there are fewer jobs than workers in some labor market  usually longer-term 10 Public Policy and Job Search  Government programs to reduce searching time:  Government-run employment agencies  Public training programs  Unemployment insurance 33 Public Policy and Job Search Government-run employment agencies: provide information about job vacancies in order to match workers and jobs more quickly  Public training programs: ease the transition of workers from declining to growing industries and to help disadvantaged groups escape poverty  34 Public Policy and Job Search  Unemployment insurance: partially protect workers’ incomes when they become unemployed  Offer workers partial protection against job losses  Offer partial payment of former wages for a limited time to those who are laid off 35 Public Policy and Job Search  Effects of Unemployment insurance:  Increase the amount of search unemployment  Reduce the search efforts of the unemployed  Improve the chances of workers being matched with the right jobs 36 Why is There Unemployment   Structural unemployment occurs when the quantity of labor supplied exceeds the quantity demanded Cause of Structural Unemployment: AboveEquilibrium Wage due to:  Minimum-wage laws  Unions  Efficiency wages 37 Minimum-Wage Laws When the minimum wage is set above the level that balances supply and demand, it creates unemployment 38 Unemployment from a Wage Above the Equilibrium Level Wage Surplus of labor = Unemployment Labor supply Minimu m wage WE Labor demand LD LE LS Quantity of Labor 39 Unions and Collective Bargaining    A union: a worker association that bargains with employers over wages and working conditions Collective bargaining: process by which unions and firms agree on the terms of employment A strike: withdrawal of labor from the firm, organized if the union and the firm cannot reach an agreement 40 41 Unions and Collective Bargaining  Collective bargaining  above equilibrium wages for their members  Unionized workers: reap the benefits - in Australia: earn up to 10 percent more than nonunion workers  Non-unionized workers: bear costs unemployed at higher wages 42 Unions and Collective Bargaining  Are Unions Good or Bad for the Economy?  Critics’ ideas: causing inefficient and inequitable allocation of labor  Advocates’ ideas: a necessary antidote/ remedy to the market power of firms that hire workers 43 Theory of Efficiency Wages  Efficiency wages  Theory of efficiency wages 44 Theory of Efficiency Wages  Reasons for using efficiency wages  Worker Health  Worker Turnover:  Worker Effort  Worker Quality 45 Why is There Unemployment  Natural U/E = Frictional U/E + Structural U/E  Cause of Frictional U/E:  Job search Cause of Structural U/E: Above-Equilibrium Wage due to:  Minimum-wage laws  Unions  Efficiency wages  46 Lecture Review 47 .. .Unemployment Chapter 28 Lecture Objectives  Describe unemployment, why it is a problem and types of unemployment  Learn how unemployment is measured  Explain reasons for natural unemployment. .. Types of Unemployment There’s always some unemployment, though the u-rate fluctuates from year to year  Natural rate of unemployment: the normal rate of unemployment around which the actual unemployment. .. male White, female Black, male Black, female Unemployment Rate Labor-Force Participation Rate 3. 2 3. 4 7.4 7.9 77.2 59.7 72.5 64.8 14.1 10.9 30 .1 25 .3 56.6 55.4 40.7 42.5 19 20 Labor Market Statistics