Principle of economics session XIII unemployment

Session XIII Unemployment Principles of Economics Overview How is unemployment measured? What are the “three types of unemployment”? What is the “natural rate of unemployment”? Why are there always some people unemployed? How is unemployment affected by unions and minimum wage laws? 1 Learning Objectives By the end of this session, students should understand: – the data used to measure the amount of unemployment. – how unemployment can result from minimum-wage laws. – how unemployment can arise from bargaining between firms and unions. – how unemployment results when firms choose to pay efficiency wages. 2 Part I Labor Force Statistics Unemployment 4 Labor Force Statistics Produced by Bureau of Labor Statistics (BLS), in the U.S. Dept. of Labor vs. in Korea, produced by Statistics Korea (통계청) Based on regular survey of 60,000 households vs. in Korea, 32, 000 households Based on “adult population” : 16 yrs or older vs. in Korea, based on 15~64 yrs As of Dec. 2014: unemployment rate in Korea 3.4% 5 Labor Force Statistics Population will be divided into 3 groups: – Employed: paid employees regardless of part-time or full-time, self-employed, and unpaid workers in a family business – Unemployed: people not working who have looked for work during previous 4 weeks – Not in the labor force: everyone else The labor force is the total # of workers, including the employed and unemployed. The BLS divides the adult population into three categories: employed, unemployed, and not in the labor force. The Breakdown of the Adult Population in 2009 Source: BLS(2009) diagram from Mankiw (2011) 6 7 Labor Force Statistics labor force participation rate labor force adult population = 100 x  Labor force participation rate : % of the adult population that is in the labor force  Unemployment rate (U-rate) : % of the labor force that is unemployed unemp. rate # of unemployed labor force = 100 x Exercise XIII-1: Calculate Labor Force Statistics Compute the labor force, unemployment rate, adult population, and labor force participation rate using this data: 8 Adult population of the U.S. by group, June 2008 # of employed 145.9 million # of unemployed 8.5 million not in labor force 79.2 million Source: Mankiw (2011) Exercise XIII-1 Answers: Calculate Labor Force Statistics Labor force = employed + unemployed = 145.9 + 8.5 = 154.4 million U-rate = 100 x (unemployed)/(labor force) = 100 x 8.5/154.4 = 5.5% 9 [...]... 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 19 U.S Unemployment, 1960–2012 12 percentage of labor force Unemployment rate 10 8 6 4 2 Natural rate of unemployment 0 1960 1965 1970 1975 1980 1985... months  Yet, most observed unemployment is long term – The small group of long-term unemployed persons has fairly little turnover, so it accounts for most of the unemployment observed over time  Knowing these facts helps policymakers design better policies to help the unemployed 17 Unemployment Part II Types of Unemployment Natural Rate of Unemployment There’s always some unemployment, though the urate... these issues, the unemployment rate is still a very useful barometer of the labor market & economy 15 Youth Unemployment Youth Unemployment : – The Economist article – http://www.economist.com/news/international/21576 657-around-world-almost-300m-15-24-year-oldsare-not-working-what-has-caused 16 The Duration of Unemployment  Most spells of unemployment are short: – Typically 1/3 of the unemployed... Frictional 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 –the process of matching workers and jobs –short-term for most workers 22 Explaining the Natural Rate: Frictional Unemployment (cont’d)  Frictional unemployment – often the result of. .. 1980 1985 1990 1995 2000 2005 2010 Source: Mankiw (2013) Three Types of Unemployment During healthy macroeconomic conditions, both structural and frictional unemployment are present During recessions, cyclical unemployment also appears Unemployment during Unemployment during recession healthy macroeconomic Cyclical conditions Natural unemployment Structural Structural Frictional Frictional 21 Source:...Exercise XIII- 1 Answers: Calculate Labor Force Statistics Population = labor force + not in labor force = 154.4 + 79.2 = 233.6 LF partic rate = 100 x (labor force)/(population) = 100 x 154.4/233.6 = 66.1% 10 Exercise XIII- 2: Limitations of the Unemployment Rate In each of the following, what happens to the u-rate? Does the unemployment rate give an accurate impression of what’s happening... growing industries Job search : the process of matching workers with appropriate jobs 25 Unemployment Insurance Unemployment insurance (UI) : a gov’t program that partially protects workers’ incomes when they become unemployed UI increases frictional unemployment To see why, recall one of the Ten Principles of Economics: People respond to incentives UI benefits end when a worker takes a job, so workers... Answer A: Limitations of the Unemployment Rate A Sue lost her job and begins looking for a new one Unemployment rate rises A rising unemployment rate gives the impression that the labor market is worsening, and it is 12 Exercise XIII- 2 Answer B: Limitations of the Unemployment Rate B Jon has been out of work since last year, becomes discouraged, stops looking for work Discouraged workers – would like... composition of demand among industries or regions of the country  Such shifts displace some workers, who must search for new jobs appropriate for their skills & tastes  The economy is always changing, so some frictional unemployment is inevitable 23 Explaining the Natural Rate: Structural Unemployment Even when the economy is doing well, there is always some unemployment, including: Structural unemployment. .. labor force” rather than “unemployed” Unemployment rate falls because Jon is no longer counted as unemployed A falling unemployment rate gives the impression that the labor market is improving, but it is not 13 Exercise XIII- 2 Answer C: Limitations of the Unemployment Rate C Sam lost his $80,000 job, and takes a part-time job at McDonald’s until he finds a better one Unemployment rate unchanged because . Session XIII Unemployment Principles of Economics Overview How is unemployment measured? What are the “three types of unemployment ? What is the “natural rate of unemployment ?. Part II Types of Unemployment Unemployment 19 Natural Rate of Unemployment There’s always some unemployment, though the u- rate fluctuates from year to year. Natural rate of unemployment. 66.1% 10 Exercise XIII- 2: Limitations of the Unemployment Rate In each of the following, what happens to the u-rate? Does the unemployment rate give an accurate impression of what’s happening