Post on 21-Dec-2015
CHAPTER 32Labor Markets, Unemployment
and Inflation
PowerPoint® Slides by Can Erbil
© 2005 Worth Publishers, all rights reserved
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What you will learn in this chapter:
The meaning of the natural rate of unemployment, and why it isn’t zero
Why cyclical unemployment changes over the business cycle
How factors such as a minimum wage and efficiency wages can lead to structural unemployment
The reasons that unemployment can be higher or lower than the natural rate for extended periods
The existence of a short-run trade-off between unemployment and inflation, called the short-run Phillips curve, that disappears in the long run
Why the NAIRU, the nonaccelerating inflation rate of unemployment, is an important measure for policy-making
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The Nature of UnemploymentWorkers who spend time looking for employment are engaged in job search.
Frictional unemployment is unemployment due to the time workers spend in job search.
Structural unemployment is unemployment that results when there are more people seeking jobs in a labor market than there are jobs available at the current wage.
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Distribution of the Unemployedby Duration of Unemployment, 2000
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The Effect of a Minimum Wage on the Labor Market
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Causes of Structural UnemploymentMinimum wages
Unions
Efficiency wages
Side effects of government policies
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The Natural Rate of Unemployment
The natural rate of unemployment
Cyclical unemployment
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The Changing Makeup of the U.S. Labor Force
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Changes in the Natural Rate of Unemployment
Changes in Labor Force Characteristics
Changes in Labor Market Institutions
Changes in Government Policies
Changes in Productivity
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The Actual Unemployment Rate FluctuatesAround the Natural Rate
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These Fluctuations Correspond to the Output Gap
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Okun’s Law
Each additional percentage point of output gap reduces the unemployment rate by less than 1 percentage point.
Unemployment rate = Natural rate of unemployment – (0.5 – Output gap)
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Why Doesn’t the Labor Market Move Quickly toEquilibrium?Misperceptions
Sticky Wages
Menu Costs
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Unemployment and Inflation: The Phillips Curve
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Unemployment and Inflation in the 1960s
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Expected Inflation and the Short-Run Phillips Curve
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The NAIRU and the Long-Run Phillips Curve
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Unemployment and Inflation, 1961–1990
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The End of Chapter 32
coming attraction:Chapter 33:
Inflation, Disinflation, and Deflation