CH.9 macro

Unemployment Rate:
- Definition: The percentage of the labor force that is unemployed.
- Computation: Based on the number of unemployed individuals divided by the total labor force.
Labor Force Participation Rate:
- Definition: The percentage of the working-age population that is part of the labor force.
Employment-Population Ratio:
- Definition: The percentage of the working-age population that is employed.
Calculating Labor Force:
- Labor Force = Employed + Unemployed
Statistics: The U.S. Department of Labor reports on employment and unemployment statistics monthly.

Conducted monthly by the U.S. Census Bureau (Current Population Survey):
- Characteristics:
- Selected households meant to be representative.
- Members aged 16 and older are surveyed about employment during "reference week."
Classification of Individuals:
- Employed: Individuals with a job or temporarily absent from it.
- Unemployed: Individuals who are not working but are available for work and have looked for work in the last month.
- Not in the Labor Force: Individuals who do not fall into the above categories.

Definition: Individuals available for work but not seeking jobs due to believing no jobs are available.

Potential for understatement:
- Difficulty in distinguishing between unemployed and those not in the labor force.
- Only quantifies jobs, not intensity of employment.
Potential for overstatement:
- False claims of actively looking for work.
- Some may claim not to be working to evade taxes.

BLS Series U-3 is the most common measure of unemployment.
- Suggested to include discouraged and underemployed workers (BLS Series U-6).

Long unemployment periods negatively affect skills and mental health.
- Example:
- Great Depression resulted in years of unemployment.
- Post-2007 recession saw average unemployment length increase from 4 to 10 months.
- Post-Covid recession saw unemployment exceed 6 months on average.

Participation rates of adult men have declined since 1948; rates for women have increased but have more recently declined.

An alternative to the household survey where employment figures are obtained directly from companies.
- Disadvantages:
- Excludes self-employed individuals.
- Newly opened firms may be omitted.
Advantages:
- Based on real payrolls.

Household Survey:
- Employed in May: 160,721,000; in June: 160,994,000.
- Unemployed in May: 6,097,000; in June: 5,957,000.
- Unemployment Rate drop: 3.7% to 3.6%.

Annually, millions of jobs are created or destroyed (e.g., 2021: 35 million created, 29.9 million destroyed).

Three Types:
1. Frictional Unemployment:
- Short-term, caused by matching workers with jobs, such as entering or re-entering the labor force.
- Seasonal unemployment can also contribute.
1. Structural Unemployment:
- Arises from a mismatch between workers' skills and job requirements (Example: decline in demand for hand-drawn animation skills).
1. Cyclical Unemployment:
- Caused by business cycle recessions.
- Normal recoveries see a decrease in cyclical unemployment.
  - Natural Rate of Unemployment: The rate when only frictional and structural unemployment are present, typically around 4-5%.

Policies:
- Trade Adjustment Assistance program for training.
- Unemployment insurance may lead to prolonged job searches.
- Minimum wage laws have shown a correlation with employment rates.

Price Level: Average prices of goods and services.
Inflation Rate: Percentage increase in price level.
Common measures include:
- Consumer Price Index (CPI)
- Producer Price Index (PPI).

Requires:
- A basket of goods.
- Base year prices.
- Current year prices.
CPI Formula:
CPI = \frac{Cost \; of \; basket \; in \; current \; year}{Cost \; of \; basket \; in \; base \; year} \times 100 .

Biases in CPI:
- Substitution bias: Change in consumer habits due to price increases.
- Quality bias: Difficulty in isolating price increases from quality improvements.
- New product bias: Delay in introducing new goods into the basket.
- Outlet bias: Original surveys focused on traditional retail outlets, limiting accuracy.

Nominal Variables: Values in current-year dollars.
Real Variables: Adjusted for inflation:
Real \; variable = \frac{Nominal \; variable}{CPI} \times 100.

Nominal Interest Rate: The stated interest rate on a loan.
Real Interest Rate: Calculated as:
Real \; interest \; rate = Nominal \; interest \; rate - Inflation \; rate.

Inflation may seem benign (e.g., across the board price doubling), but not all prices and wages rise evenly, creating inequities.
Anticipated Inflation:
- Can cause income redistribution.
- Increases real costs of cash holding.
- Introduces menu costs for firms.

Difficulty in making informed borrowing and lending decisions can lead to market instability.

Inflation affects lower income individuals differently, with variances in spending habits illustrating the differential impact during inflationary periods.