In this chapter you will learn about the data used to measure the amount of unemployment, consider how unemployment arises from the process of job search, consider how unemployment can result from minimum-wage laws, see how unemployment can arise from bargaining between firms and unions, examine how unemployment results when firms choose to pay efficiency wages.
Unemployment and Its Natural Rate Copyright © 2004 South-Western 28 IDENTIFYING UNEMPLOYMENT • Categories of Unemployment • The problem of unemployment is usually divided into two categories • The longrun problem and the shortrun problem: • Thenaturalrateofunemployment Thecyclicalrateofunemployment Copyright â 2004 South-Western IDENTIFYING UNEMPLOYMENT NaturalRateofUnemployment Thenaturalrateofunemploymentisunemployment thatdoesnotgoawayonitsowneveninthelong run Itistheamountofunemploymentthattheeconomy normallyexperiences Copyright â 2004 South-Western IDENTIFYING UNEMPLOYMENT • Cyclical Unemployment • Cyclical unemployment refers to the yeartoyear fluctuations in unemployment around its natural rate • It is associated with with shortterm ups and downs of the business cycle Copyright © 2004 South-Western IDENTIFYING UNEMPLOYMENT • Describing Unemployment • Three Basic Questions: • How does government measure the economy’s rate of unemployment? • What problems arise in interpreting the unemployment data? • Howlongaretheunemployedtypicallywithoutwork? Copyright â 2004 South-Western How Is Unemployment Measured? UnemploymentismeasuredbytheBureauof LaborStatistics(BLS) Itsurveys60,000randomlyselectedhouseholds everymonth ThesurveyiscalledtheCurrentPopulationSurvey Copyright â 2004 South-Western How Is Unemployment Measured? • Based on the answers to the survey questions, the BLS places each adult into one of three categories: • Employed Unemployed Notinthelaborforce Copyright â 2004 South-Western How Is Unemployment Measured? TheBLSconsidersapersonanadultifheor sheisover16yearsold Copyright â 2004 South-Western How Is Unemployment Measured? Apersonisconsideredemployedifheorshe hasspentmostofthepreviousweekworkingat apaidjob Copyright â 2004 South-Western How Is Unemployment Measured? • A person is unemployed if he or she is on temporary layoff, is looking for a job, or is waiting for the start date of a new job Copyright © 2004 South-Western Figure Unemployment from a Wage Above the Equilibrium Level Wage Labor supply Surplus of labor = Unemployment Minimum wage WE Labor demand LD LE LS Quantity of Labor Copyright©2003 Southwestern/Thomson Learning UNIONS AND COLLECTIVE BARGAINING • A union is a worker association that bargains with employers over wages and working conditions. • In the 1940s and 1950s, when unions were at their peak, about a third of the U.S. labor force was unionized • A union is a type of cartel attempting to exert its market power Copyright © 2004 South-Western UNIONS AND COLLECTIVE BARGAINING • The process by which unions and firms agree on the terms of employment is called collective bargaining Copyright © 2004 South-Western UNIONS AND COLLECTIVE BARGAINING Astrikewillbeorganizediftheunionandthe firmcannotreachanagreement Astrikereferstowhentheunionorganizesa withdrawaloflaborfromthefirm Copyright â 2004 South-Western UNIONS AND COLLECTIVE BARGAINING • A strike makes some workers better off and other workers worse off • Workers in unions (insiders) reap the benefits of collective bargaining, while workers not in the union (outsiders) bear some of the costs Copyright © 2004 South-Western UNIONS AND COLLECTIVE BARGAINING • By acting as a cartel with ability to strike or otherwise impose high costs on employers, unions usually achieve aboveequilibrium wages for their members • Union workers earn 10 to 20 percent more than nonunion workers Copyright © 2004 South-Western Are Unions Good or Bad for the Economy? • Critics argue that unions cause the allocation of labor to be inefficient and inequitable • Wages above the competitive level reduce the quantity of labor demanded and cause unemployment • Some workers benefit at the expense of other workers Copyright © 2004 South-Western Are Unions Good or Bad for the Economy? • Advocates of unions contend that unions are a necessary antidote to the market power of firms that hire workers • They claim that unions are important for helping firms respond efficiently to workers’ concerns Copyright © 2004 South-Western THE THEORY OF EFFICIENCY WAGES • Efficiency wages are aboveequilibrium wages paid by firms in order to increase worker productivity. • The theory of efficiency wages states that firms operate more efficiently if wages are above the equilibrium level Copyright © 2004 South-Western THE THEORY OF EFFICIENCY WAGES • A firm may prefer higher than equilibrium wages for the following reasons: • Worker Health: Better paid workers eat a better diet and thus are more productive • Worker Turnover: A higher paid worker is less likely to look for another job Copyright © 2004 South-Western THE THEORY OF EFFICIENCY WAGES • A firm may prefer higher than equilibrium wages for the following reasons: • Worker Effort: Higher wages motivate workers to putforwardtheirbesteffort WorkerQuality:Higherwagesattractabetterpool ofworkerstoapplyforjobs Copyright â 2004 South-Western Summary The unemployment rate is the percentage of those who would like to work but don’t have jobs • The Bureau of Labor Statistics calculates this statistic monthly • The unemployment rate is an imperfect measure of joblessness Copyright © 2004 South-Western Summary • In the U.S. economy, most people who become unemployed find work within a short period of time • Most unemployment observed at any given timeisattributabletoafewpeoplewhoare unemployedforlongperiodsoftime Copyright â 2004 South-Western Summary Onereasonforunemploymentisthetimeit takesforworkerstosearchforjobsthatbest suittheirtastesandskills Asecondreasonwhyoureconomyalwayshas someunemploymentisminimumưwagelaws Minimumưwagelawsraisethequantityoflabor suppliedandreducethequantitydemanded Copyright â 2004 South-Western Summary • A third reason for unemployment is the market power of unions • A fourth reason for unemployment is suggested by the theory of efficiency wages • High wages can improve worker health, lower worker turnover, increase worker effort, and raise worker quality Copyright © 2004 South-Western ... Thenaturalrateofunemployment Thecyclicalrateofunemployment Copyright â 2004 South-Western IDENTIFYING UNEMPLOYMENT NaturalRateofUnemployment Thenaturalrateofunemploymentisunemployment thatdoesnotgoawayonitsowneveninthelong...IDENTIFYING UNEMPLOYMENT • Categories of Unemployment • The problem of unemployment is usually divided into two categories • The longrun problem and the shortrun problem: • Thenaturalrateofunemployment... South-Western Table The Labor-Market Experiences of Various Demographic Groups Copyright©2004 South-Western Figure Unemployment Rate Since 1960 Percent of Labor Force 10 Unemployment rate Natural