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Chapter 15 - Unemployment

15.1: Identifying Unemployment

How is Unemployment Measured?

  • It is monitored by the Bureau of Labor Statistics (BLS), apart of the Department of Labor

  • Survey responses of each adult (age 16+)

    • Employed- s those who worked as paid employees, worked in their own business, or worked as unpaid workers in a family member’s business. Both full-time and part-time workers are counted. This category also includes those who were not working but who had jobs from which they were temporarily absent because of, for example, vacation, illness, or bad weather.

    • Unemployed- those who were not employed, were available for work, and had tried to find employment during the previous four weeks. It also includes those waiting to be recalled to a job from which they had been laid off.

    • Not in the labor force- those who fit neither of the first two categories, such as a full-time student, homemaker, or retiree.

  • Labor force- the total number of workers, including both the employed and the unemployed

  • Unemployment rate- the percentage of the labor force that is unemployed

  • Labor-force participation rate- the percentage of the adult population that is in the labor force

  • The natural rate of unemployment- the normal rate of unemployment around which the unemployment rate fluctuates

Breakdown of Population

Demographic Groups

Unemployment Rate

Does the Unemployment Rate Measure What We Want It To?:

  • Discouraged workers- individuals who would like to work but have given up looking for a job

  • Half of all spells of unemployment ended when the unemployed person leaves the labor force.

Labor Underutilization

How Long Are the Unemployed without Work?

  • Most spells of unemployment are short, and most unemployment observed at any given time is long-termOne problem is that a few workers who’ve been jobless for a long period of time still aren’t assisted

  • Economists and policymakers must be careful when interpreting data on unemployment and when designing policies to help the unemployed

Why Are There Always Some People Unemployed?

  • In an ideal labor market, wages would adjust to balance the quantity of labor supplied and the quantity of labor demanded

    • The adjustments ensure that all workers are fully employed

    • But reality doesn’t resemble this ideal

  • Frictional unemployment- unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills

15.2: Job Search

  • Job search- the process by which workers find appropriate jobs given their tastes and skills

Why Some Frictional Unemployment Is Inevitable:

  • It is often the result of changes in the demand for labor among a different firm

  • Sectoral shifts- Changes in the composition of demand among industries or regions

  • It is inevitable because the economy is always changing

Public Policy and Job Search:

  • Government programs that facilitate job search- give out info. on job vacancies

    • Public training programs- help ease workers’ transition from declining to growing industries and to help the disadvantaged groups escape poverty

Unemployment Insurance:

  • A government program that partially protects workers’ incomes when they become unemployed

15.3: Minimum Wage Laws:

  • Minimum wage matters for the least skilled and experienced member of the labor force

    • Such as teenagers

  • If the wage is kept above the equilibrium level for any reason, the result is unemployment

Unemployment

15.4: Unions and Collective Bargaining:

  • Union- a worker association that bargains with employers over wages, benefits, and working conditions

The Economics of Unions:

  • Collective bargaining- the process by which unions and firms agree on the terms of employment

  • Strike- the organized withdrawal of labor from a firm by a union

Are Unions Good or Bad for the Economy?

  • Critics argue that it would prevail in competitive markets

    • Reducing the quantity of labor and cause unemployment

    • Reducing the wages in the rest of the economy

  • Advocates claim that it helps firms respond efficiently to workers’ concerns

    • Such as hours of work, overtime, vacations, sick leave, health benefits, promotion schedules, job security, etc.

15.5: The Theory of Efficiency Wages

  • Above-equilibrium wages paid by firms to increase worker productivity

  • There are 4 types of efficiency-wage theory

    • Worker Health

    • Worker Turnover

    • Worker Quality

    • Worker Efforts

15.1: Identifying Unemployment

How is Unemployment Measured?

  • It is monitored by the Bureau of Labor Statistics (BLS), apart of the Department of Labor

  • Survey responses of each adult (age 16+)

    • Employed- s those who worked as paid employees, worked in their own business, or worked as unpaid workers in a family member’s business. Both full-time and part-time workers are counted. This category also includes those who were not working but who had jobs from which they were temporarily absent because of, for example, vacation, illness, or bad weather.

    • Unemployed- those who were not employed, were available for work, and had tried to find employment during the previous four weeks. It also includes those waiting to be recalled to a job from which they had been laid off.

    • Not in the labor force- those who fit neither of the first two categories, such as a full-time student, homemaker, or retiree.

  • Labor force- the total number of workers, including both the employed and the unemployed

  • Unemployment rate- the percentage of the labor force that is unemployed

  • Labor-force participation rate- the percentage of the adult population that is in the labor force

  • The natural rate of unemployment- the normal rate of unemployment around which the unemployment rate fluctuates

Breakdown of Population

Demographic Groups

Unemployment Rate

Does the Unemployment Rate Measure What We Want It To?:

  • Discouraged workers- individuals who would like to work but have given up looking for a job

  • Half of all spells of unemployment ended when the unemployed person leaves the labor force.

Labor Underutilization

How Long Are the Unemployed without Work?

  • Most spells of unemployment are short, and most unemployment observed at any given time is long-termOne problem is that a few workers who’ve been jobless for a long period of time still aren’t assisted

  • Economists and policymakers must be careful when interpreting data on unemployment and when designing policies to help the unemployed

Why Are There Always Some People Unemployed?

  • In an ideal labor market, wages would adjust to balance the quantity of labor supplied and the quantity of labor demanded

    • The adjustments ensure that all workers are fully employed

    • But reality doesn’t resemble this ideal

  • Frictional unemployment- unemployment that results because it takes time for workers to search for the jobs that best suit their tastes and skills

15.2: Job Search

  • Job search- the process by which workers find appropriate jobs given their tastes and skills

Why Some Frictional Unemployment Is Inevitable:

  • It is often the result of changes in the demand for labor among a different firm

  • Sectoral shifts- Changes in the composition of demand among industries or regions

  • It is inevitable because the economy is always changing

Public Policy and Job Search:

  • Government programs that facilitate job search- give out info. on job vacancies

    • Public training programs- help ease workers’ transition from declining to growing industries and to help the disadvantaged groups escape poverty

Unemployment Insurance:

  • A government program that partially protects workers’ incomes when they become unemployed

15.3: Minimum Wage Laws:

  • Minimum wage matters for the least skilled and experienced member of the labor force

    • Such as teenagers

  • If the wage is kept above the equilibrium level for any reason, the result is unemployment

Unemployment

15.4: Unions and Collective Bargaining:

  • Union- a worker association that bargains with employers over wages, benefits, and working conditions

The Economics of Unions:

  • Collective bargaining- the process by which unions and firms agree on the terms of employment

  • Strike- the organized withdrawal of labor from a firm by a union

Are Unions Good or Bad for the Economy?

  • Critics argue that it would prevail in competitive markets

    • Reducing the quantity of labor and cause unemployment

    • Reducing the wages in the rest of the economy

  • Advocates claim that it helps firms respond efficiently to workers’ concerns

    • Such as hours of work, overtime, vacations, sick leave, health benefits, promotion schedules, job security, etc.

15.5: The Theory of Efficiency Wages

  • Above-equilibrium wages paid by firms to increase worker productivity

  • There are 4 types of efficiency-wage theory

    • Worker Health

    • Worker Turnover

    • Worker Quality

    • Worker Efforts