Transcript unemployed

“The Economic
Way of Thinking”
11th Edition
© 2006 Prentice Hall Business Publishing
Chapter 15:
Employment
and
Unemployment
The Economic Way of Thinking, 11/e
Heyne/Boettke/Prychitko
Chapter 15 Outline
• Introduction
• Unemployment and Non-employment
• Employed, Not Employed and Unemployed
• Labor-Market Decisions
• Unemployment Rates and Employment Rates
• Costs and Decisions
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Chapter 15 Outline
• Unemployment and Recessions
• Why Does Unemployment Persist?
• The Phillips Curve
• Reducing Unemployment by Illusion: Inflation
and the Misdirection of Labor
• Labor Market Policies
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Introduction
What do we mean by unemployment?
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Unemployment and Non-Employment
• Observations
– Approximately half of the people in the US are not
employed.
– A quarter are under the age of 16.
– One-eighth are over 65.
• Questions
– How do we distinguish between the unemployed and
the not employed?
– When does unemployment become a problem?
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Employed, Not Employed
and Unemployed
• Unemployment data
– Bureau of Labor Statistics (BLS)
– Current Population Survey
• Census Bureau
• Monthly survey – 60,000 households
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Employed, Not Employed
and Unemployed
• Who is counted?
– Non-institutional people over age 16
• Classifications
– Employed
– Unemployed
– Not in the labor force
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Employed, Not Employed
and Unemployed
• Unemployed
–
–
–
–
In the non-institutional population.
Over age 16.
Without employment during survey week.
Made efforts to find employment during the last 4
weeks.
– Be available for work.
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Employed, Not Employed
and Unemployed
Unemployment Rate = Unemployed / Labor Force
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Employed, Not Employed
and Unemployed
• Deriving Unemployment Data
–
–
–
–
–
–
Total population
Minus under age 16 or institutionalized
Equals non-institutional population
Minus those not in labor force
Minus those employed
Equals those unemployed
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Labor Market Decisions
Non-institutional Population
Seeks
employment
(in the labor force)
Accepts
employment
(employed)
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Does not seek
employment
(not in the labor force)
Does not accept
employment
(unemployed)
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Labor Market Decisions
• BLS definition of unemployed implies:
– A decision to actively seek employment.
– A decision not to accept any of the employment
opportunities available.
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Unemployment Rates
and Employment Rates
• Unemployment Rate =
– # unemployed / labor force
• Employment Rate =
– # employed / non-institutional population
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Unemployment Rates
and Employment Rates
• Questions
– Why hasn’t the large increase in labor force
participation caused the unemployment rate to rise?
– Does technology reduce the number of jobs?
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Costs and Decisions
• Teenagers living at home with free room and
board.
– In school – limited availability to job market.
– If deciding on college – will not make a job
commitment.
– Can afford long job search.
– Can afford to quit a job to find a better one.
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Costs and Decisions
• A person loses his / her job
– Incentive to find another job.
• Decreases as unemployment benefits increase.
– Likely to remain unemployed.
• Member of multi-earner family.
• Eligible for unemployment benefits.
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Costs and Decisions
• With high expectations of finding a job…
– More people will enter the labor force.
– People will search in occupations where employment
expectations are greater.
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Costs and Decisions
• All 3 scenarios will lead to an increase in
unemployment rates.
– Teenagers living at home.
– Worker who loses his / her job.
– People with high expectations.
• Would this increase indicate a weaker
economy?
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Unemployment and Recessions
Recessions
Unemployment
Rate
1954
5.5%
1958
6.8%
1961
6.7%
1975
8.5%
1982
9.7%
1992
7.4%
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Recovery
Peak
Unemployment
Rate
1953
5.5%
1957
4.3%
1960
5.5%
1973
4.9%
1979
5.8%
1990
5.5%
1998
4.4%
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Why Does Unemployment Persist?
• After a recession has ended…
– Firms will wait to expand until recovery is certain.
– Firms become more efficient during recession.
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Why Does Unemployment Persist?
• Employers have an incentive to keep wages
high.
– Keep workers from leaving.
– Easier to reduce employment than wages.
– Unemployed do not put downward pressure on
wages.
• Employers more attentive to those on the payroll.
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Why Does Unemployment Persist?
Wage rate
S
surplus
W1
Why won’t the
wage rate fall
to We?
We
D
Q1
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Qe
Q2
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Number of
employed
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Why Does Unemployment Persist?
• Conclusions:
– A persistent surplus of labor will exist.
– Quantity supplied of labor will be greater than the
quantity demanded.
– There is a chronic shortage of jobs and a chronic
surplus of job seekers.
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The Phillips Curve
• Economist A. W. Phillips (1958)
– Unemployment increased when
• Money wage rates were increasing slowly.
– Unemployment decreased when
• Money wage rates were increasing rapidly.
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The Phillips Curve
• Policy makers proposed
– Unemployment might be reduced
• With an inflationary increase in money supply.
– Unemployment and Inflation
• Inversely related
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The Phillips Curve
• If full employment causes inflation
– Will inflation bring about full employment?
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Reducing Employment by Illusion
Inflation
rate
6
A “well-behaved”
Phillips curve:
U.S., 1954 - 69.
69
5
68
56
4
66
55 65
67
3
2
57
1
0
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4
59
62
54
64
63
60
5
6
58
61
Unemployment
rate
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Reducing Employment by Illusion
Inflation
rate
11
10
9
8
7
6
5
4
3
2
1
0
74
80
78
81
75
79
73
A “not-sowell-behaved”
Phillips curve:
U.S., 1970 - 81.
77
70
71
76
72
4
5
6
7
8
9 Unemployment
rate
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Reducing Employment by Illusion
• What caused the Phillips Curve to dissolve?
– Distinguish between real and nominal wages.
– Is the unemployment rate close to the natural rate?
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Labor Market Policies
• What can the government do to lower
unemployment?
–
–
–
–
Reduce economic fluctuations.
Job skills training.
Abolish unemployment compensation.
Improve quality of information on the economy.
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Labor Market Policies
• Western European Policies
– Designed to reduce unemployment
– Discourage employers from hiring new workers
• Nearly impossible to lay-off workers
– Increased unemployment
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Once Over Lightly
• Many people not employed are not in the labor
force – and not unemployed.
• Difference between not employed and
unemployed is not always clear.
• Expected advantages of alternative
opportunities determine decisions as to labor
force entry.
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Once Over Lightly
• Expected benefits and costs as to labor force
entry have been changing in recent years.
• Labor markets and commodity markets differ.
• Unemployment rate and inflation rate.
• Government labor market policies and effect on
unemployment.
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End of Chapter 15
QUESTIONS?
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