Chapter 15- Unemployment

Unemployment statistics

• a monthly survey of 60,000 households

• based on people 16+

• made by BLS

Employed

paid employees, self-employed, unpaid workers in a family business, full time + part time

Unemployed

people who aren’t working, are available for work and have looked for work during previous 4 weeks

Not in labor force

full time students, retirees, homemakers

Labor force =

employed + unemployed (total # of workers)

Unemployment rate definition

percentage of labor force that is unemployed

Unemployment rate formula

u-rate= 100 x (# unemployed/labor force)

Labor force participation rate definition

percentage of adult population that is in the labor force

LFPR formula

LFPR= 100 x (labor force/adult population)natural

natural rate of unemployment

the normal rate of unemployment around which the u-rate fluctuates

cyclical unemployment

the deviation of unemployment from its natural rate

During an economic recession, the cyclical unemployment is __

positive

LFPR trend over time by gender

Over time, male LFPR has decreased and female LFPR has increased

Problems with the u-rate

excludes discouraged workers, doesn’t distinguish between full time and part time work

When talking unemployment, long term is ___

over 6 months

Frictional unemployment

it takes time for workers to search for jobs that best suit their interests

Structural unemployment

when the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one

Is frictional unemployment long or short term?

Short

Is structural unemployment long or short term?

Long

Why does structural unemployment happen?

Wages are stuck above equilibrium wage

job search

process by which workers find appropriate jobs given their tastes/skills

Why is some frictional unemployment inevitable?

1. economy is always changing

2. sectoral shifts

3. changing patterns of international trade

Sectoral shifts

changes in demand among industries or regions

What parts of public policy help with the job search?

1. government run employment agencies

2. public training programs

3. advocates

What do critics of public policies relating to the job search say?

they think that it’s better for private market to match workers and jobs

Unemployment insurance

government program that partially protects workers’ incomes when they become unemployed (50% wages for 26 weeks)

Who doesn’t get unemployment insurance?

1. if you quit yourself

2. if you get fired justly

3. if you just entered the job market and then you leave

Unemployment insurance ___ unemployment

increases (people have less incentive to search for jobs while eligible to receive benefits)

Benefits of unemployment insurance

1. reduces income uncertainty

2. more time to search for best jobs

3. improves ability of economy to find best jobs for people

When wage is above equilibrium, ___ unemployment occurs

structural

Effects of minimum wage

it causes structural unemployment (Qs > Qd)

workers are unemployed because they are waiting for jobs to open up

Why does structural unemployment occur?

minimum wages, unions, and efficiency wages

Unions

Worker association that bargains with employers over wages, benefits, and work conditions

Collective bargaining

the process of how the unions and employers decide on wages and terms of unemployment

Insiders vs outsiders during a strike

Insiders- workers who remain employed (are better off)

Outsiders- workers who lose their jobs or those who are unemployed and want to join in (are worse off)

Critics of unions

say that unions = cartels and they are inefficient/inequitable

Advocates of unions

say that unions counter the market power of large firms, they keep happy and productive workers, and keep firms more responsive

Efficiency wages

firms voluntarily pay above equilibrium wages to boost worker productivity and increase profits

Efficiency wages- worker health

a firm pays higher wages so that its workers are healthy and productive

Efficiency wages- worker turnover

firms pay high wages so that it gives workers more incentive to stay and reduces turnover

Efficiency wages- worker quality

firms that offer high wages attract better job applicants and that increases quality of the workforce

Efficiency wages- worker morale

workers are less productive if they think they are being treated unfairly