Chapter 8 Macroeconomics

Adult Population Consists of

Employed

Unemployed

Out of the Labor Force

Employed

Currently working for pay

Unemployed

Out of work and actively looking for a job

Out of the Labor Force

Those who are not working and not looking for work, whether they want employment or not

“Not in the labor force”

Labor Force

The number of employed plus the unemployed

Unemployment Rate

The percentage of adults who are in the labor force and thus seeking jobs, but who do not have jobs

Unemployment rate=unemployed people/total labor force=x100

Underemployed

Individuals who are employed in a job that is below their skills

Hidden Employment

People who are mislabeled in the categorization of employed, unemployed, or out of the labor force

Discouraged Workers

Those who have stopped looking for employment due to the lack of suitable positions available

Labor Force Participation Rate

The percentage of adults in an economy who are either employed or who are unemployed and looking for a job

Labor force participation rate=Total labor force/total adult population=x100

Measuring Unemployment

Poorer countries lack resource and technical capabilities in their statistical agencies

Different Labor Markets

In low-income countries, workers are not involved in the labor market through an employer who pays them regularly, but in short-term work, subsistence activities, and barter

Cyclical Unemployment

Unemployment closely tied to the business cycle, like higher unemployment during a recession

Implicit Contract

An unwritten agreement in the labor market that the employer will try to keep wages from falling when the economy is weak or the business is having trouble, and the employee will not expect huge salary increases when the economy business is strong

Efficiency Wage Theory

The theory that the productivity of workers, either individually or as a group, will increase if the employer pays them more

Adverse Selection of Wage Cuts Argument

If employers reduce wages for all workers, the best will leave

Insider-Outsider Model

Those already working in the firm are “insiders” who know the procedures; the other workers are “outsiders” who are recent or prospective hires

Relative Wage Coordination Argument

Across-the-board wage cuts are hard for an economy to implement, and workers fight against them

Natural Rate of Unemployment

The unemployment rate that would exist in a growing and healthy economy from the combination of economic, social, and political factors that exist at a given time

Frictional Unemployment

Unemployment that occurs as workers move between jobs

Structural Unemployment

Unemployment that occurs because individuals lack skills valued by employers