Macro Lecture 3

8/12/2019 Macro Lecture 3

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MacroLecture3

Jobs and UnemploymentLecture Highlights

the labor market status of the population

the trends and fluctuations in the

indicators of labor market performance

sources and types of unemployment,

define full employment, and explain the

link between unemployment and real GDP


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Recessions, depressions, and

Unemployment The business cycle describes the periodic

ups and downs in the economy, or

deviations of output and employment awayfrom the long-run trend.

A recession is roughly a period in whichreal GDP declines for at least twoconsecutive quarters. It is marked byfalling output and rising unemployment


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Contd.

A depression is a prolonged and deep

recession. The precise definitions of

prolonged and deep are debatable. Capacity utility rates, which show the

percentage of factory capacity being used

in production are one indicator of arecession.


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Defining and Measuring

Unemployment The most frequently discussed symptom

of a recession is unemployment.

The working-age populationtotalnumber of people age 16 years and overwho are not in jail, hospital,or some otherform of institutional care.

Labor forcethe number of peopleemployed plus the number unemployed.


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Contd.

An employed person is any person 16 yearsold or older.

(i) Who works for pay, either for someone else orin his or her own business for 1 or more hoursper week.

(ii) Who works without pay for 15 hours or more

hours per week in a family enterprise, or(iii) Who has a job but has been temporarily

absent, with or without pay.


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Contd.

An unemployed person is a person 16 years old or olderwho

(i) is not working.

(ii) is available for work, and(iii) has made specific efforts to find work during the

previous 4 weeks.

A person who is not looking for work, either because heor she does not want a job or has given up looking, is not

in the labor force. Unemployment ratethe percentage of the people in

the labor force who are unemployed.


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Contd.

unemployment rate = no. of people unemployed X 100____________________

Labor force

e.g. In June 2002, the number of people unemployed was

8.7 million and the labor force was 143.7 million.

Unemployment rate = 8.7 X 100 = 6.1%____

143.7


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Contd.

labor force participation ratethe percentage ofthe working-age population who are members ofthe labor force.

Labor participation rate = Labor force X 100

__________

working-age population

e.g. In June 2002, the labor force was 143.7 million and the working-age population was 213.8 million.

Labor force participation rate = 143.7 X 100

_____ = 67.2%

213.8


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The Discouraged-Worker Effect

The discouraged-worker effect lowers the

unemployment rate.

Discouraged workers are people who wantto work but cannot find jobs. They grow

discouraged and stop looking for work,

thus dropping out of the ranks of theunemployed and the labor force.


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The Sources and Types of

Unemployment How do people become unemployed, how long do

they remain unemployed and who is at greatest risk tobecome unemployed?

sources of unemploymentsome people move into the labor force, and somemove out of it.

People who become unemployed are

(i) Job losers(ii) Job leavers

(iii) Entrants or reentrants


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Job losers

People who are fired or laid off from their jobs either permanentlyor temporarily.

Reasons people lose their jobs:

(i) Not a good match for the job theyre doing.

(ii) Firms fail.(iii) New technology destroys some jobs.

A job loser has two choices: look for another job or withdraw fromthe labor force.

A job loser who decides to look for a new job remains in the laborforceunemployed.

Those withdraw from the labor force is not counted as beingunemployed.


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Job leavers

People who voluntarily quit their jobs.

People who leave their jobs for two reasons:

(i) Either theyve gotten a better job or theyvedecided to withdraw from the labor force.

Neither of these types of job leavers becomes

unemployed.

(ii) A few people quit their jobs because they want

a better jobunemployed.


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Entrants and reentrants

People who have just left school and entered the

job market are called entrants.

Many entrants spend time searching for theirfirst jobduring this period, they are

unemployed.

People who have previously had jobs, then quit

and left the labor force and have now decided to

look for jobs are called reentrants.


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Contd.

How unemployment ends

People who end a period of unemployment are either hiresand recalls or withdrawals.

Hires and recallsPeople who have been unemployed but have been hired to

start a new job are called hires.

People who have been temporarily laid off and who startwork again are called recalls.

WithdrawalsPeople who have been unemployed and who decide to

stop looking for jobs are called withdrawals.


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Labor market flow

unemployed employedNot in labor force

Entrants, reentrants

Hires,entrants

Job losers, job

leavers

Job losers, job leavers, retirees

withdrawals

Entrants,reentrants


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Types of Unemployment

Frictional unemployment

Structural unemployment

Seasonal unemployment

Cyclical unemployment


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Frictional unemployment

the unemployment that arises from normallabor turnover. From people entering andleaving the labor force and from the ongoing

creation and destruction of jobs.The amount of frictional unemployment depends

on

(i) The rate at which people enter and reenter the

labor force and on the rate at which jobs arecreated and destroyed.

(ii) Unemployment compensation increases thenumber of unemployed higher frictionalunemployment.


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Structural unemployment

the unemployment that arises when

changes in technology or international

competition change the skills needed toperform jobs or change the locations of

jobs.


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Seasonal unemployment

the unemployment that arises because of

seasonal weather patterns.

Unemployment increases during the wintermonths and decreases during the spring

and summer.


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Cyclical unemployment

the fluctuating unemployment over the

business cycle. Unemployment increases

during a recession and decreases duringan expansion.


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Full employment

full employment occurs when there is no cyclicalunemployment or when all the unemployment isfrictional, structural, and seasonal.

the divergence of the unemployment rate fromfull employment is cyclical unemployment.

The unemployment rate at full employment iscalled the natural unemployment rate.

potential GDPthe level of real GDP that theeconomy would produce if it were at fullemployment.

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Macro Lecture 3