Macroeconomics

1. Macroeconomics Unit 6 Unemployment Top Five Concepts

2. Introduction This unit discusses the causes and problems associated with unemployment. You will also learn the types of unemployment and who is included when the unemployment rate is calculated. Did you know that some people who are unemployed may not be counted or included in the unemployment rate?

3. Concept 1: The Labor Force The labor force consists of all persons over the age of 16 who are either working for pay or actively seeking paid employment. About half of the U.S. population participates in the civilian labor force. People who are not employed and not actively seeking employment are not counted as part of the labor force.

4. Concept 1: The Labor Force People not included in the civilian labor force include homemakers, students, retired people, disabled people, and some others.

5. Concept 1: The Labor Force Increases in the labor force produces an outward shift in the production possibilities curve. Larger labor forces increase the capacity of the economy to produce goods and services. In order for the economy to be producing at it’s full capacity, the labor force must be fully employed. If the labor force participation rate is declining, it is an indication that the number of people working and/or actively seeking employment is declining.

6. Concept 2: Unemployment Unemployment is the inability of labor-force participants to find jobs. As the labor force grows, making sure that all participants are fully employed becomes a critical issue. Okun’s Law states that for each additional 1 percent increase in unemployment there is a corresponding 2 percent decline in output (GDP).

7. Concept 2: Unemployment There are many reasons for unemployment: • A person may be just entering the labor force • A person was laid off from full employment • A person could quit full time employment or be fired Some people are no longer counted as being unemployed. They are called discouraged workers. They are considered people who are not actively seeking employment but would look for or accept a job if one was available.

8. Concept 2: Unemployment Other employment problems include those individuals who are either working part-time and seeking full-time employment, or are employed at jobs below their capacity. People in this situation are called underemployed. Examples of underemployment include a college graduate with a Bachelor’s degree in business working as a cook at a fast food restaurant, and a teacher who is unable to find a full-time job working as a substitute teacher. Underemployed people are counted as being employed and not included in the unemployment rate.

9. Concept 2: Unemployment Another employment problem occurs when people indicate that they are actively seeking employment but are not really interested in finding a job. These people are called the phantom unemployed. The phantom unemployed are counted as part of the unemployment rate even though they are not really interested in working. These lazy individuals say they are looking just so they can continue to pull an unemployment check.

10. Concept 3: Types Of Unemployment There are four types of unemployment: Seasonal, Frictional, Structural, and Cyclical. Seasonal unemployment is unemployment due to seasonal changes in employment or labor supply. Examples include students employed during the summer at Point Mallard or during the winter at a ski resort.

11. Concept 3: Types of Unemployment Frictional unemployment is a brief period of unemployment experienced by people moving between jobs or into the labor market. People have the skills and knowledge necessary to get a job, and the jobs are available. Examples of frictionally unemployed people include new college graduates and people quitting a job and looking for something different or better.

12. Concept 3: Types of Unemployment Structural unemployment is unemployment caused by a mismatch between the skills or location of job seekers and the requirements or location of available jobs. Jobs may be available in other geographic areas or for individuals with specific skills and abilities. For example, in the 1970s automobile assembly lines employed people to make welds on cars being produced. When automation replaced those workers with robots in the 1980s, there was no longer the same demand for welders among manufacturers in the automobile producing states. However, at the same time, there was a strong demand for welders in other sectors of the economy (such as the oil industry) and in other parts of the country (such as Alaska and the Oil Patch states). If welders laid off in the auto industry were informed of these job opportunities (and were sufficiently mobile) they could find employment and would no longer be unemployed.

13. Concept 3: Types of Unemployment Cyclical unemployment is unemployment caused by a lack of job vacancies; an inadequate level of aggregate demand. Cyclical unemployment commonly occurs during recessions. Companies cut back on workers due to reduced sales, fears of an economic recession, and insufficient consumer demand.

14. Concept 4: Full Employment The overall economic goal of the U.S. economy is for full employment. Full employmentis defined as the lowest rate of unemployment compatible with price stability; usually between 4 – 6 percent unemployment. As a general rule, full employment is reached when all those looking for work can find work in a reasonable time period.

15. Concept 5: Outsourcing/Insourcing Outsourcing is a process where business moves the production of goods outside the U.S. to benefit from lower costs, taxes, and fewer regulations. An example of outsourcing is when a consumer products company moves its telephone customer service agents to India to benefit from lower costs. NAFTA job loss is another type of outsourcing. Insourcing is a process where business moves the production of goods to the U.S. to become closer to other manufacturers, consumers, and more beneficial costs. An example of insourcing occurs when a foreign parts supplier to the U.S. automotive industry builds a plant in the U.S. to be closer to the manufacturers.

16. Wage Determination • The traditional theory of wage determination says that supply and demand together will determine the equilibrium wage rate.  • The theory of negotiated wages uses organized labor’s bargaining strength to help explain wage differentials.  • According to the signaling theory, employers are willing to pay more for those people with certain indicators of superior ability or degrees/certifications. Click the mouse button or press the Space Bar to display the information.

19. Regional Wage Differences • Wages can vary when demand for certain skilled positions exceeds supply.  • Employers tend to offer higher wages in areas where the cost of living is higher than normal.  • People sometimes are willing to accept lower wages if the location of the job is attractive to them. Click the mouse button or press the Space Bar to display the information.

20. Categories of Labor • Unskilled laborers make some of the lowest wages.  • Semiskilled workers do jobs that require a minimum amount of training.  • Skilled workers hold jobs that require experience and training.  • Professional workers do jobs that require a high level of knowledge-based education and managerial skills. Click the mouse button or press the Space Bar to display the information.

21. Here are some examples of unskilled jobs: • parking lot attendant • cleaner or janitor • fast food worker • line operator • messenger • sewing machine operator (semi-automatic) • construction laborer • information desk clerk, and • vegetable harvester/picker (and some other types of farm workers).

22. Some semi-skilled jobs require monitoring, quality checking, or doing repetitive tasks. Here are some examples of semi-skilled jobs: • retail salesperson • security guard • telephone solicitor • waiter/waitress • bartender • flight attendant • taxi driver • laundry operator • nurse's assistant • furniture mover • file clerk, and • fisherman.

23. Here are some examples of skilled jobs: • secretary or administrative assistant • sales representative • customer service representative • tailor • nurse • office clerk • fast food cook • travel agent, and • mortgage processor.

24. BLS statistics and explanation of employmentPDF in folder http://www.bls.gov/news.release/empsit.nr0.htm

25. Missing workers • http://www.epi.org/publication/missing-workers/

26. Economic growth is something that is beneficial to almost everyone. • Sometimes though, economic growth is interrupted by business cycles–largely systematic ups and downs of real GDP. • At other times economic growth is interrupted by business fluctuations–the rise and fall of real GDP over time in a nonsystematic manner. • Don’t worry about the differences between cycles and fluctuations. Click the mouse button or press the Space Bar to display the information.

27. Either way, economic growth—even the record setting expansion that took place during the 1990s— always comes to a halt before it begins to take off again. • The inevitable ups and downs of the economy are among the reasons why economists have developed tools like the monthly index of leading indicators featured in the cover story. Click the mouse button or press the Space Bar to display the information.

28. The business cycle consists of two phases: expansion and recession. • Recession begins with a peak and ends with a trough. • Expansion is the recovery from a recession. • If a recession becomes very severe, it can turn into a depression. Click the mouse button or press the Space Bar to display the information.

29. The worst recession in U.S. history was the Great Depression, which began in 1929. • The Great Depression was caused by various factors, including excessive borrowing in the 1920s, global economic conditions, and overproduction. • Since the Great Depression, the United States has experienced several recessions, but each was short compared with the recovery that followed. Click the mouse button or press the Space Bar to display the information.

30. Click the mouse button or press the Space Bar to display the information.

32. What happens during a recession? Production slows, output declines, unemployment rises, and the standard of living falls. Click the mouse button or press the Space Bar to display the answer.

33. Businesses reduce their capital expenditures once they decide they have expanded enough. • Businesses cut back their inventories at the first sign of an economic slowdown. • Businesses cut back on investment after an innovation takes hold. • Tight money policies of the Federal Reserve System slow the economy. • External shocks, such as increases in oil prices and international conflicts, can affect business cycles.

34. Why do businesses cut back on their inventories when they think the economy is turning down? Because they fear sales will decline.

35. Econometric models are macroeconomic models that use algebraic equations to describe how the economy behaves. • The index of leading indicators is a monthly statistical series that helps economists predict the direction of future economic activity.

37. These 10 components include: 1. the average weekly hours worked by manufacturing workers2. the average number of initial applications for unemployment insurance3. the amount of manufacturers' new orders for consumer goods and materials4. the speed of delivery of new merchandise to vendors from suppliers5. the amount of new orders for capital goods unrelated to defense6. the amount of new building permits for residential buildings7. the S&P 500 stock index8. the inflation-adjusted monetary supply (M2)9. the spread between long and short interest rates10. consumer sentiment