Chapter 6 homework

1. Chapter 6 homework • Question 6: Harry Keyser • Question 10: Kevin Kasparitis • Question 14: Fabian Lemp • Question 16: Thomas Trevor • Alternate: Jon Manning

2. Theory in Action… • http://news.yahoo.com/s/afp/20070221/ts_alt_afp/usjapanautocompany_070221002126;_ylt=AmGijEzozUCCr8_ei2B8UdrlyREBNissan Offers Voluntary Layoffs at Tennessee PlantsApplied Topics: Derived demand, determinants of the demand for labor, production function • The article examines Nissan's recent offer to workers. • Questions: • How is Nissan's offer to its workers for "buyouts" related to the concept of derived demand? • How is it possible that the productivity of Nissan's workers has increased but that the demand for labor at Nissan has decreased? (Hint: Is the production function the same for the new mix of vehicles to be produced this year as compared to 2006?)

3. Chapter 7 Unemployment and Employment

4. How Governments Increase Unemployment • The U.S. government attempts to reduce the effects of frictional unemployment with unemployment insurance • Benefits provided to people who • are unemployed through no fault of their own • are ready, willing and able to work • are actively seeking work

5. How Governments Increase Unemployment (cont’d) • Does unemployment insurance reduce the opportunity cost of not working too much??? • Remain unemployed for a longer period than they would if they didn’t receive it • Some research says Yes • In Europe, where unemployment benefits are more generous, unemployment rates are higher than in the U.S.

6. Figure 7.3 Average Unemployment Rates in Selected Industrial Economies: 1990–2004

7. The Social Consequences of Unemployment • Economists and sociologists have noted that rising unemployment is associated with: • Increased crime • More domestic violence • A higher incidence of mental illness • Falling marriage and birth rates

8. The Social Consequences of Unemployment (cont’d) • Unemployment also results in lost output for society as a whole. • Less people working  less output produced • The relationship between unemployment and GDP is known as Okun’s Law: • A 1% rise in the unemployment rate above the full employment unemployment rate causes GDP to fall by about 2.5%.

9. Immigrants and Unemployment • Does immigration take away jobs from U.S. citizens? • Some research suggests a negative impact on native-born workers. • A country with high wages will attract immigrants • Shift the supply of labor curve to the right • Drive wages down.

10. Figure 7.4 The Impact of Immigration on Domestic Wages and Employment

11. Immigrants and Unemployment • But…really it is more complex. • Immigrants may take jobs that native-workers are unable or unwilling to take.

12. Trade and Unemployment • What happens if the U.S. tries to keep wages and employment high by restricting immigration or trade? • May cause an increase in imports of goods and services from lower-wage counties. • Restricting trade through tariffs and quotas can lead to higher prices for consumers. • Other countries may retaliate by keeping out U.S. made goods and services.

13. Strategy and Policy • It all depends on how you count: • In July of 2004, the BLS reported that the economy had added 150,000 fewer jobs than had been expected, and yet the unemployment rate fell from 5.6% to 5.5%. • Two problems: • The employment data is collected from an establishment survey of 160,000 businesses and governmental agencies. • The unemployment rate is based on a household survey.

14. Playing with the numbers • During the last presidential election both candidates (Bush and Kerry) picked out what they thought would help them from these numbers • Kerry: addition of 150,000 fewer jobs  economy recovery slowing down • Bush: unemployment rate fell from 5.6 to 5.5  economy showing steady improvement

15. Chapter 7 homework • Numbers 2, 4, 10, 14, 16