1、 2009 South-Western,a part of Cengage Learning,all rights reservedC H A P T E RMacroeonomicsPremium PowerPoint Slides by Ron Cronovich15How is unemployment measured?What is the“natural rate of unemployment”?Why are there always some people unemployed?How is unemployment affected by unions and minimu
2、m wage laws?What is the theory of efficiency wages,and how does it help explain unemployment?1UNEMPLOYMENT2Labor Force StatisticsProduced by Bureau of Labor Statistics(BLS),in the U.S.Dept.of Labor Based on regular survey of 60,000 householdsBased on“adult population”(16 yrs or older)UNEMPLOYMENT3La
3、bor Force StatisticsBLS divides population into 3 groups:Employed:paid employees,self-employed,and unpaid workers in a family businessUnemployed:people not working who have looked for work during previous 4 weeksNot in the labor force:everyone elseThe labor force is the total#of workers,including th
4、e employed and unemployed.UNEMPLOYMENT4labor force participation ratelabor forceadult population=100 xLabor Force StatisticsLabor force participation rate:%of the adult population that is in the labor force Unemployment rate(“u-rate”):%of the labor force that is unemployedu-rate#of unemployedlabor f
5、orce=100 x5Compute the labor force,u-rate,adult population,and labor force participation rate using this data:Adult population of the U.S.by group,June 2008#of employed145.9 million#of unemployed8.5 millionnot in labor force79.2 millionLabor force=employed+unemployed=145.9+8.5=154.4 million U-rate=1
6、00 x(unemployed)/(labor force)=100 x 8.5/154.4=5.5%6 Population=labor force+not in labor force=154.4+79.2=233.6LF partic.rate=100 x(labor force)/(population)=100 x 154.4/233.6=66.1%7UNEMPLOYMENT8Labor Market Statistics for Different GroupsThe BLS publishes these statistics for demographic groups wit
7、hin the population.These data reveal widely different labor market experiences for different groups.UNEMPLOYMENT9Labor Market Statistics for Whites&Blacks,June 2008Adults(20 yrs&older)u-rateLF part.rateWhite,male4.5%76.1%White,female4.260.4Black,male9.371.5Black,female7.464.3UNEMPLOYMENT10Labor Mark
8、et Statistics for Whites&Blacks,June 2008Teens(16-19 yrs)u-rateLF part.rateWhite16.643.9Black29.627.9UNEMPLOYMENT11Labor Market Statistics for Other Groups,June 2008All agesu-rateLF part.rateAsian4.567.4Hispanic7.769.0UNEMPLOYMENT12Labor Market Statistics by Education Level,June 2008Adults(25 yrs&ol
9、der)u-rateLF part.rateless than h.s.8.7%45.9%h.s.diploma5.162.8some college or assoc degree4.271.9bachelors degree or more2.378.1UNEMPLOYMENT13LF Participation Rates by Sex,1950-2007MenWomen14In each of the following,what happens to the u-rate?Does the u-rate give an accurate impression of whats hap
10、pening in the labor market?A.Sue lost her job and begins looking for a new one.B.Jon,a steelworker who has been out of work since his mill closed last year,becomes discouraged and gives up looking for work.C.Sam,the sole earner in his family of 5,just lost his$80,000 job as a research scientist.Imme
11、diately,he takes a part-time job at McDonalds until he can find another job in his field.15A.Sue lost her job and begins looking for a new one.u-rate risesA rising u-rate gives the impression that the labor market is worsening,and it is.16B.Jon has been out of work since last year,becomes discourage
12、d,stops looking for work.Discouraged workers would like to work but have given up looking for jobsclassified as“not in the labor force”rather than“unemployed”U-rate falls because Jon is no longer counted as unemployed.A falling u-rate gives the impression that the labor market is improving,but it is
13、 not.17C.Sam lost his$80,000 job,and takes a part-time job at McDonalds until he finds a better one.U-rate unchanged because a person is“employed”whether they work full or part time.Things are worse,but the u-rate fails to show it.UNEMPLOYMENT18What Does the U-Rate Really Measure?The u-rate is not a
14、 perfect indicator of joblessness or the health of the labor market:It excludes discouraged workers.It does not distinguish between full-time and part-time work,or people working part time because full-time jobs not available.Some people misreport their work status in the BLS survey.Despite these is
15、sues,the u-rate is still a very useful barometer of the labor market&economy.UNEMPLOYMENT19The Duration of UnemploymentMost spells of unemployment are short:Typically 1/3 of the unemployed have been unemployed under 5 weeks,2/3 have been unemployed under 14 weeks.Only 20%have been unemployed over 6
16、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.UNEMPLOYMENT20Cyclical Une
17、mployment vs.the Natural RateTheres always some unemployment,though the u-rate fluctuates from year to year.Natural rate of unemploymentthe normal rate of unemployment around which the actual unemployment rate fluctuates Cyclical unemploymentthe deviation of unemployment from its natural rateassocia
18、ted with business cycles,which well study in later chapters0246810121960 1965 1970 1975 1980 1985 1990 1995 2000 2005U.S.Unemployment,1960-2007Natural rate of unemploymentUnemployment ratepercentage of labor forceUNEMPLOYMENT22Explaining the Natural Rate:An OverviewEven when the economy is doing wel
19、l,there is always some unemployment,including:Frictional unemploymentoccurs when workers spend time searching for the jobs that best suit their skills and tastesshort-term for most workersStructural unemploymentoccurs when there are fewer jobs than workersusually longer-termUNEMPLOYMENT23Job SearchW
20、orkers have different tastes&skills,and jobs have different requirements.Job search is the process of matching workers with appropriate jobs.Sectoral shifts are changes in the composition of demand across industries or regions of the country.Such shifts displace some workers,who must search for new
21、jobs appropriate for their skills&tastes.The economy is always changing,so some frictional unemployment is inevitable.UNEMPLOYMENT24Public Policy and Job SearchGovt employment agencies provide information about job vacancies to speed up the matching of workers with jobs.Public training programs aim
22、to equip workers displaced from declining industries with the skills needed in growing industries.UNEMPLOYMENT25Unemployment InsuranceUnemployment insurance(UI):a govt program that partially protects workers incomes when they become unemployed UI increases frictional unemployment.To see why,recall o
23、ne of the Ten Principles of Economics:People respond to incentives.UI benefits end when a worker takes a job,so workers have less incentive to search or take jobs while eligible to receive benefits.UNEMPLOYMENT26Unemployment InsuranceBenefits of UI:Reduces uncertainty over incomesGives the unemploye
24、d more time to search,resulting in better job matches and thus higher productivity UNEMPLOYMENT27Explaining Structural UnemploymentStructural unemployment occurs when not enough jobs to go around.WLDSWEactual wageW1unemp-loymentOccurs when wageis kept above eqm.There are three reasons for thisUNEMPL
25、OYMENT281.Minimum-Wage LawsThe min.wage may exceed the eqm wage for the least skilled or experienced workers,causing structural unemployment.But this group is a small part of the labor force,so the min.wage cant explain most unemployment.UNEMPLOYMENT292.UnionsUnion:a worker association that bargains
26、 with employers over wages,benefits,and working conditions Unions exert their market power to negotiate higher wages for workers.The typical union worker earns 20%higher wages and gets more benefits than a nonunion worker for the same type of work.UNEMPLOYMENT302.UnionsWhen unions raise the wage abo
27、ve eqm,quantity of labor demanded falls and unemployment results.“Insiders”workers who remain employed,they are better off“Outsiders”workers who lose their jobs,they are worse offSome outsiders go to non-unionized labor markets,which increases labor supply and reduces wages in those markets.UNEMPLOY
28、MENT312.UnionsAre unions good or bad?Economists disagree.Critics:Unions are cartels.They raise wages above eqm,which causes unemployment and/or depresses wages in non-union labor markets.Advocates:Unions counter the market power of large firms,make firms more responsive to workers concerns.UNEMPLOYM
29、ENT323.Efficiency WagesThe theory of efficiency wages:Firms voluntarily pay above-equilibrium wages to boost worker productivity.Different versions of efficiency wage theory suggest different reasons why firms pay high wages.UNEMPLOYMENT333.Efficiency Wages1.Worker healthIn less developed countries,
30、poor nutrition is a common problem.Paying higher wages allows workers to eat better,makes them healthier,more productive.2.Worker turnoverHiring&training new workers is costly.Paying high wages gives workers more incentive to stay,reduces turnover.Four reasons why firms might pay efficiency wages:UN
31、EMPLOYMENT343.Efficiency Wages3.Worker qualityOffering higher wages attracts better job applicants,increases quality of the firms workforce.4.Worker effortWorkers can work hard or shirk.Shirkers are fired if caught.Is being fired a good deterrent?Depends on how hard it is to find another job.If mark
32、et wage is above eqm wage,there arent enough jobs to go around,so workers have more incentive to work not shirk.Four reasons why firms might pay efficiency wages:35Which of the following would be most likely to reduce frictional unemployment?A.The govt eliminates the minimum wage.B.The govt increase
33、s unemployment insurance benefits.C.A new law bans labor unions.D.More workers post their resumes at M,and more employers use M to find suitable workers to hire.E.Sectoral shifts become more frequent.36A.The govt eliminates the minimum wage.C.A new law bans labor unions.These are likely to reduce st
34、ructural unemployment,not frictional unemployment.Which of the following would be most likely to reduce frictional unemployment?37Which of the following would be most likely to reduce frictional unemployment?B.The govt increases unemployment insurance benefits.E.Sectoral shifts become more frequent.
35、These are likely to increase frictional unemployment,not reduce it.38Which of the following would be most likely to reduce frictional unemployment?D.More workers post their resumes at M,and more employers use M to find suitable workers to hire.Likely to speed up the process of matching workers&jobs,
36、which would reduce frictional unemployment.UNEMPLOYMENT39Explaining the Natural Rate of Unemployment:A SummaryThe natural rate of unemployment consists of frictional unemployment It takes time to search for the right jobs Occurs even if there are enough jobs to go around structural unemployment When
37、 wage is above eqm,not enough jobs Due to min.wages,labor unions,efficiency wagesIn later chapters,we will learn about cyclical unemployment,the short-term fluctuations in unemployment associated with business cycles.The unemployment rate is the percentage of those who would like to work who do not
38、have jobs.Unemployment and labor force participation vary widely across demographic groups.The natural rate of unemployment is the normal rate of unemployment around which the actual rate fluctuates.Cyclical unemployment is the deviation of unemployment from its natural rate and is connected to shor
39、t-term economic fluctuations.40The natural rate includes frictional unemployment and structural unemployment.Frictional unemployment occurs when workers take time to search for the right jobs.Structural unemployment occurs when above-equilibrium wages result in a surplus of labor.Three reasons for above-equilibrium wages include minimum wage laws,unions,and efficiency wages.41
