Ch28-Unemployment

Chapter28Macro-economicsPRINCIPLESOFN.GregoryMankiwInthischapter,lookfortheanswerstothesequestions:Howisunemploymentmeasured?Whatisthe“naturalrateofunemployment”?Whyaretherealwayssomepeopleunemployed?Howisunemploymentaffectedbyunionsandminimumwagelaws?Whatisthetheoryofefficiencywages,andhowdoesithelpexplainunemployment?1UNEMPLOYMENT2LaborForceStatisticsProducedbyBureauofLaborStatistics(BLS),intheU.S.Dept.ofLaborBasedonregularsurveyof60,000householdsBasedon“adultpopulation”(16yrsorolder)UNEMPLOYMENT3LaborForceStatisticsBLSdividespopulationinto3groups:Employed:paidemployees,self-employed,andunpaidworkersinafamilybusinessUnemployed:peoplenotworkingwhohavelookedforworkduringprevious4weeksNotinthelaborforce:everyoneelseThelaborforceisthetotal#ofworkers,includingtheemployedandunemployed.UNEMPLOYMENT4laborforceparticipationratelaborforceadultpopulation=100xLaborForceStatisticsLaborforceparticipationrate:%oftheadultpopulationthatisinthelaborforceUnemploymentrate(“u-rate”):%ofthelaborforcethatisunemployedu-rate#ofunemployedlaborforce=100xACTIVELEARNING1Calculatelaborforcestatistics5Computethelaborforce,u-rate,adultpopulation,andlaborforceparticipationrateusingthisdata:AdultpopulationoftheU.S.bygroup,December2009#ofemployed137.8million#ofunemployed15.3millionnotinlaborforce83.9millionLaborforce=employed+unemployed=137.8+15.3=153.1millionU-rate=100x(unemployed)/(laborforce)=100x15.3/153.1=10.0%ACTIVELEARNING1Answers6Population=laborforce+notinlaborforce=153.1+83.9=237.0LFpartic.rate=100x(laborforce)/(population)=100x153.1/237.0=64.6%ACTIVELEARNING1Answers7UNEMPLOYMENT8LaborMarketStatisticsforDifferentGroupsTheBLSpublishesthesestatisticsfordemographicgroupswithinthepopulation.Thesedatarevealwidelydifferentlabormarketexperiencesfordifferentgroups.UNEMPLOYMENT9LaborMarketStatisticsforWhites&Blacks,December2009Adults(20yrs&older)u-rateLFpart.rateWhite,male9.3%74.3%White,female7.460.0Black,male16.668.8Black,female13.162.7UNEMPLOYMENT10LaborMarketStatisticsforWhites&Blacks,December2009Teens(16-19yrs)u-rateLFpart.rateWhite23.6%38.4%Black48.4%27.5%UNEMPLOYMENT11LaborMarketStatisticsforOtherGroups,December2009Allagesu-rateLFpart.rateAsian8.4%65.7%Hispanic12.967.1UNEMPLOYMENT12LaborMarketStatisticsbyEducationLevel,December2009Adults(25yrs&older)u-rateLFpart.ratelessthanh.s.15.3%45.6%h.s.diploma10.561.4somecollegeorassocdegree9.070.6bachelor’sdegreeormore5.077.3UNEMPLOYMENT132030405060708090195019551960196519701975198019851990199520002005LFParticipationRatesbySex,1950-2007MenWomenACTIVELEARNING2Limitationsoftheu-rate14Ineachofthefollowing,whathappenstotheu-rate?Doestheu-rategiveanaccurateimpressionofwhat’shappeninginthelabormarket?A.Suelostherjobandbeginslookingforanewone.B.Jon,asteelworkerwhohasbeenoutofworksincehismillclosedlastyear,becomesdiscouragedandgivesuplookingforwork.C.Sam,thesoleearnerinhisfamilyof5,justlosthis$80,000jobasaresearchscientist.Immediately,hetakesapart-timejobatMcDonald’suntilhecanfindanotherjobinhisfield.ACTIVELEARNING2Answers15A.Suelostherjobandbeginslookingforanewone.u-raterisesArisingu-rategivestheimpressionthatthelabormarketisworsening,anditis.ACTIVELEARNING2Answers16B.Jonhasbeenoutofworksincelastyear,becomesdiscouraged,stopslookingforwork.Discouragedworkerswouldliketoworkbuthavegivenuplookingforjobsclassifiedas“notinthelaborforce”ratherthan“unemployed”U-ratefallsbecauseJonisnolongercountedasunemployed.Afallingu-rategivestheimpressionthatthelabormarketisimproving,butitisnot.ACTIVELEARNING2Answers17C.Samlosthis$80,000job,andtakesapart-timejobatMcDonald’suntilhefindsabetterone.U-rateunchangedbecauseapersonis“employed”whethertheyworkfullorparttime.Thingsareworse,buttheu-ratefailstoshowit.UNEMPLOYMENT18WhatDoestheU-RateReallyMeasure?Theu-rateisnotaperfectindicatorofjoblessnessorthehealthofthelabormarket:Itexcludesdiscouragedworkers.Itdoesnotdistinguishbetweenfull-timeandpart-timework,orpeopleworkingparttimebecausefull-timejobsnotavailable.SomepeoplemisreporttheirworkstatusintheBLSsurvey.Despitetheseissues,theu-rateisstillaveryusefulbarometerofthelabormarket&economy.UNEMPLOYMENT19TheDurationofUnemploymentMostspellsofunemploymentareshort:Typically1/3oftheunemployedhavebeenunemployedunder5weeks,2/3havebeenunemployedunder14weeks.Only20%havebeenunemployedover6months.Yet,mostobservedunemploymentislongterm.Thesmallgroupoflong-termunemployedpersonshasfairlylittleturnover,soitaccountsformostoftheunemploymentobservedovertime.Knowingthesefactshelpspolicymakersdesignbetterpoliciestohelptheunemployed.UNEMPLOYMENT20CyclicalUnemploymentvs.theNaturalRateThere’salwayssomeunemployment,thoughtheu-ratefluctuatesfromyeartoyear.NaturalrateofunemploymentthenormalrateofunemploymentaroundwhichtheactualunemploymentratefluctuatesCyclicalunemploymentthedeviationofunemploymentfromitsnaturalrateassociatedwithbusinesscycles,whichwe’llstudyinlaterchapters0246810121960196519701975198019851990199520002005U.S.Unemployment,1960-2007NaturalrateofunemploymentUnemploymentratepercentageoflaborforceUNEMPLOYMENT22Explai