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At 8:30 A.M. on a Friday early in each month, the U.S. Department of Labor reports its estimate of the previous month’s ________________
unemployment rate.
The Household Survey
60,000 households
Employed
if they worked during the week before the survey or if they were temporarily away from their jobs because they were ill, on vacation, on strike, or for other reasons
Unemployed
if they did not work in the previous week but were available for work and had actively looked for work at some time during the previous four weeks
Unemployment rate formula
unemployed / labor force * 100
Labor force participation rate
labor force / working age population * 100
One problem that the BLS confronts is
distinguishing between people who are unemployed and people who are not in the labor force.
BLS may understate the true degree of joblessness in the economy during a recession. Why?
During an economic recession, for example, an increase in discouraged workers usually occurs, as people who have had trouble finding jobs stop actively looking—these workers are not counted as unemployed
The issue with BLS regarding part time employment
In a recession, counting as “employed” a part-time worker who wants to work full time makes the employment situation appear better than it is
The issue with BLS regarding a lack of verifying answers
Some people who claim to be unemployed and actively looking for work may not really be actively looking. A person might claim to be actively looking for a job in order to remain eligible for government payments to the unemployed. In this case, a person who is actually not in the labor force is counted as unemployed.
How would it affect the unemployment rate if the Bureau of Labor Statistics counted as unemployed both (1) discouraged workers and (2) people who work part-time but would prefer to work full-time?
The unemployment rate would increase.
When the economy was expanding in early 2007, fewer than _______ percent of the unemployed had been jobless for more than 6 months.
20
The labor force participation rate is important because
it determines the quantity of labor that will be available to the economy from a given population.
Two important trends in the labor force participation rates of adults aged 20 and over in the United States since 1948 are the _________ labor force participation rate of adult women and the __________ labor force participation rate of adult men.
rising; falling
The establishment survey
Monthly
300,000 business establishments
Provides information on the total number of persons who are employed and on a company payroll
Establishment survey drawbacks
The survey does not provide information on the number of self-employed persons because they are not on a company payroll.
The survey may fail to count some persons employed at newly opened firms that are not included in the survey.
The survey provides no information on unemployment.
The values for employment that the BLS initially announces can be significantly revised as data from additional establishments become available.
Establishment survey advantage
determined by actual payrolls rather than by unverified answers
BLS difficulty measuring employment and unemployment during COVID
During the pandemic, many people were not working because the state or local government had ordered the businesses that employed them to close. The interviewers conducting the job survey initially counted these workers as “employed but absent from work” and not as unemployed
(The establishment survey doesn’t report an estimate of the unemployment rate.)
The BLS’s estimate of the unemployment rate is calculated from responses to the household survey.
Unemployment rate falls under this condition:
If the number of people employed increases—thereby increasing the denominator in the unemployment rate equation—while the number of people unemployed remains the same or falls, as a matter of arithmetic, the unemployment rate will have to fall
The BLS reported that the unemployment rate in August 2022 rose, even though total employment increased. That outcome is possible only if:
the number of people who are unemployed also increased, resulting in a proportionally larger increase in the numerator in the unemployment equation relative to the denominator.
One important fact about employment is not very well known:
The U.S. economy creates and destroys millions of jobs every year.
The creation and destruction of jobs results from
changes in consumer tastes, technological progress, and the successes and failures of entrepreneurs in responding to the opportunities and challenges of shifting consumer tastes and technological change.
The extent of job creation and job destruction is
what we would expect in a vibrant market system.
AHE is calculated by
adding all of the wages and salaries workers are paid—including overtime and bonus pay—and dividing by the total number of hours worked.
AHE has the drawback of
not including benefits that many workers receive, such as health insurance or contributions to retirement accounts
The employment cost index (ECI), includes
benefits workers receive in addition to wages and salaries and which holds constant changes in the mix of occupations in which people are employed
The employment cost index (ECI) gives a ____ accurate picture of wages than do data on average hourly earnings (AHE).
more
The unemployment rate follows the
business cycle
Frictional unemployment
is short-term unemployment that arises from the process of matching workers with jobs.
Why frictional unemployment is inevitable
The process of job search takes time, so there will always be some workers who are frictionally unemployed because they are between jobs and in the process of searching for new ones.
Seasonal unemployment
refers to frictional unemployment due to factors such as weather or variations in tourism and other calendar-related events.
the BLS reports two unemployment rates each month
one that is seasonally adjusted and one that is not seasonally adjusted.
Structural unemployment
arises from a persistent mismatch between the job skills or attributes of workers and the requirements of jobs.
cyclical unemployment
Workers who lose their jobs because of a recession
Economists consider the sum of frictional and structural unemployment to be the
natural rate of unemployment
Governments can help reduce the level of frictional unemployment
with policies that speed up the process of matching unemployed workers with unfilled jobs. Government-sponsored job fairs are an example of this type of policy.
Governments can help reduce structural unemployment by
implementing policies that aid worker retraining.
For example, the federal government’s Trade Adjustment Assistance program offers training to workers who lose their jobs as a result of competition from foreign firms.
The unemployment rate in the United States is usually ________ than the unemployment rates in most other high-income countries, partly because the United States has _________ requirements for the unemployed to receive government payments.
lower; more stringent
Increases in the minimum wage will
increase unemployment among teenagers.
Most economists agree that the above-market wage paid in unionized industries significantly increases the unemployment rate in the United States.
False
An efficiency wage
is an above-market wage that a firm pays to motivate workers to be more productive.
The consumer price index
(CPI) is a measure of the average of the prices a typical urban family of four pays for the goods and services they purchase.
The price level
measures the average prices of goods and services in the economy
The inflation rate
is the percentage increase in the price level from one year to the next.
To obtain prices of a representative group of goods and services, the BLS surveys _____ households nationwide on their spending habits.
14,000
Because the CPI measures the cost to a typical family of buying a representative basket of goods and services, it is sometimes called the
cost-of-living index.
The CPI is intended to measure
changes in the price level over time.
Of the eight categories in the CPI market basket, which three categories make up the largest percent of the basket?
housing, transportation, and food
Computation of the CPI assumes that households buy the same market basket of products each month. For this reason, which one of the following factors is not relevant in calculating the CPI?
the quantities of the products households purchase in the current year
The BLS collects price statistics from traditional full-price retail stores, which do not reflect the prices some consumers pay by shopping at discount stores or on the Internet.
the outlet bias
whereas the CPI tracks the prices of goods and services purchased by a typical household, the PPI tracks the prices
firms receive for goods and services at all stages of production.
The PPI includes the prices of i
ntermediate goods, such as flour, yarn, steel, and lumber; and raw materials, such as raw cotton, coal, and crude petroleum.
U 3 unemployment
Only those looking for a job
U 6
Includes discouraged workers, underemployed workers, and those marginally attached to the labor force
Always higher than U 3
Inelligible for state insurance
Clergy and amtrak workers across state lines
A benchmark revision
is a periodic update to official economic data, such as employment and GDP figures, to improve accuracy by incorporating more complete and reliable information.
Why is January important?
January is an important month for the Bureau of Labor Statistics (BLS) because it’s when they implement benchmark revisions and key methodological updates to employment data.
What are the four major categories of expenditure?
Consumption, investment, government purchases, and net exports
What are the four categories of income?
Wages, Interest, Rent, and Profit.
Which of the following equations sums up the components of Gross Domestic Product (GDP)?
Y = C + I + G + NX
GDP = consumption + investment + government purchases + net exports
Why is GDP an imperfect measurement of total production in the economy?
GDP does not include household production or production from the underground economy
Real GDP per capita is often used as a measure of generalwell-being. While increases in real GDP often do lead to increases in thewell-being of thepopulation, why is real GDP not a perfect measure ofwell-being?
A.
GDP does not include crime rates or income distribution.
B.
The value of leisure is not included.
C.
The costs of pollution are not included.
D.
All of the above
All of the above
GDP deflator equation
(nominal / real) * 100
Suppose the base year is 2001. Looking at GDP data from the United States from 2001 to the present, what would be true of the relationship between nominal GDP and real GDP?
RGDP < NGDP because prices are rising
If prices rise over time, then real GDP will be
larger than nominal GDP in years before the base year.
Disposable personal income is
personal income minus personal taxes.
Which of the following would be included in the gross national product (GNP) of the United States?
Production from a U.S. firm that operates in Mexico
The largest component of
gross domestic income is
wages
National income is
GDP minus depreciation
Personal income is
national income minus retained corporate earnings plus government transfer payments and interest on government bonds
Suppose John Q. Worker is currently unemployed. Each day, John Q. Worker spends the entire day searching available job openings for an appropriate position given his set of skills, abilities, and interests. If someone asks John Q. what he does for work, he tells them that he is currently "in-between jobs." Which of the following best classifies John Q.'s unemployment status?
Frictionally unemployed
(Short-term unemployment that arises from the process of matching workers with jobs.)
The economy is at full employment when
the only remaining unemployment is either frictional or structural.
What effect do labor unions have on the unemployment rate?
Since few non-government workers are unionized, there is no significant effect on the unemployment rate.
How do unemployment insurance payments in the United States and social insurance programs in other countries increase the unemployment rate?
They decrease the opportunity cost of job search.
Which of the following can give an early warning of future increases in the price level?
Producer price index
Economic variables valued using current-year prices are called
nominal variabes
If the actual value of an economic variable today exceeds its nominal value in a previous year adjusted for inflation, then the variable's actual value has risen ____ quickly than the cost of living
more
The extent of job creation and job destruction is
what we would expect in a vibrant market system
Note 
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