PRINCIPLES OF MACROECONOMICS · 2018-09-10 · PRINCIPLES OF MACROECONOMICS Chapter 8 Unemployment...
Transcript of PRINCIPLES OF MACROECONOMICS · 2018-09-10 · PRINCIPLES OF MACROECONOMICS Chapter 8 Unemployment...
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PRINCIPLES OF MACROECONOMICSChapter 8 Unemployment
Modified by: Yun WangFall 2017, Florida International University
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FIGURE 21.1
Borders was one of the many companies unable to recover from the economic recession of 2008-2009.
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LABOR MARKET
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UNEMPLOYMENT
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MEASURING UNEMPLOYMENT
unemployment rate = unemployed
employed + unemployed
labor force = employed + unemployed
population = labor force + not in labor force
labor force participation rate = labor forcepopulation
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EMPLOYMENT DATA
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PATTERNS OF UNEMPLOYMENT
The U.S. unemployment rate moves up and down as the economy moves in and out of recessions. But over time, the unemployment rate seems to return to a range of 4% to 6%. Highest rate was about 10% in 1983-84 and 2007-09 recession.
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PATTERNS OF UNEMPLOYMENT
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TYPES OF UNEMPLOYMENT
Frictional unemployment: Unemployment due tosearching time for jobs and waiting time between jobs
e.g., Jennifer, just graduated from college, is looking for ajob that matches her qualifications
Structural unemployment: Unemployment due to changes in the structure of the economy that result in aloss of jobs in certain industries
e.g., Ken, a farm laborer, lost his job due to mechanization.He is getting trained to be a security officer.
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TYPES OF UNEMPLOYMENT
Cyclical unemployment: Unemployment due tolabor lay-offs in a recession
e.g., Nancy, an engineer, is let go as her employerattempts to cut labor cost.
Seasonal unemployment: Unemployment due toseasonal changes
e.g., Tom, a ski instructor, loses his job when winterEnds.
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TYPES OF UNEMPLOYMENT
Natural Rate of Unemployment: Unemploymentthat occurs as a normal functioning of the economy.
=Frictional Unemployment + Structural Unemployment
Usually 4 to 5 percent of the labor force is searching forjobs, waiting between jobs, or getting trained for new jobs.
Unemployment rate above the natural rate isconsidered to be cyclical, e.g., 7.5% – 5% = 2.5%
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In a labor market with flexible wages, the equilibrium will occur at wage We and quantity Qe, where the demand for labor intersect the supply of labor.
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Because the wage rate is stuck at W, above the equilibrium, the number of job seekers (Qs) is greater than the number of job openings (Qd). The result is unemployment = Qs – Qd.
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a) In a labor market where wages could rise, an increase in the demand for labor leads to an increase in equilibrium wage and employment.
b) In a labor market where wages could not fall, a decline in the demand for labor leads to a loss of employment at the original wage. At the fixed wage of W0, unemployment = Q0 – Q2
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ADJUSTMENT TO INCREASED DEMAND
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o Productivity improves, increasing the demand for labor, wage, and employment.
o Then productivity stops increasing. Still, wages keep rising.
o But, the demand for labor has not increased, so at a market wage, unemployment exists.
q There is no improvement in productivity.q There is no wage increase. q Now, productivity improves, increasing the demand
for labor and creating more jobs.
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ADJUSTMENT TO PRODUCTIVITY INCREASED