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Chapter 13: Chapter 13: Economic Economic Challenges Challenges

Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

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Page 1: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

Chapter 13: Chapter 13: Economic ChallengesEconomic Challenges

Page 2: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

UnemploymentUnemployment

►4 Types of Unemployment4 Types of UnemploymentFrictional UnemploymentFrictional Unemployment►People are taking time to People are taking time to find another jobfind another jobDissatisfied with current jobDissatisfied with current jobTime off for education, or Time off for education, or personal reasonspersonal reasons

Page 3: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

UnemploymentUnemployment

►4 Types of Unemployment4 Types of Unemployment Seasonal UnemploymentSeasonal Unemployment►Industry regularly shuts down Industry regularly shuts down during a particular seasonduring a particular seasonEx. – Farm laborers travel Ex. – Farm laborers travel across the country to work across the country to work seasonal cropsseasonal crops

Ex. - Tax preparation jobsEx. - Tax preparation jobs

Page 4: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

UnemploymentUnemployment

►4 Types of Unemployment4 Types of Unemployment Structural UnemploymentStructural Unemployment►Structure of the economy Structure of the economy changes, changing types of jobs changes, changing types of jobs availableavailableNew technologies (farm jobs New technologies (farm jobs disappear, new factory jobs)disappear, new factory jobs)

Consumer demand changesConsumer demand changesGlobalization – companies Globalization – companies relocate jobs to other countriesrelocate jobs to other countries

Page 5: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

UnemploymentUnemployment

►4 Types of Unemployment4 Types of Unemployment Cyclical UnemploymentCyclical Unemployment►Contraction and recession Contraction and recession cause loss of jobscause loss of jobsConsumers have less money, Consumers have less money, demand shifts left for most demand shifts left for most productsproducts

Companies lay off workers to Companies lay off workers to accommodate this decreaseaccommodate this decrease

Page 6: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

UnemploymentUnemployment

►The Unemployment RateThe Unemployment RateU.S. Bureau of the Census U.S. Bureau of the Census polls 50,000 families to polls 50,000 families to calculate % of Americans who calculate % of Americans who are looking for work, but are looking for work, but cannot find a jobcannot find a job

# of ppl. unemployed / # of # of ppl. unemployed / # of civilians polledcivilians polled

Page 7: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

UnemploymentUnemployment

►The Unemployment RateThe Unemployment Rate An unemployment rate of 0% is An unemployment rate of 0% is

impossibleimpossible Full Employment is when there is Full Employment is when there is

no no cyclical cyclical unemploymentunemployment Economies are considered healthy Economies are considered healthy

with an unemployment rate of 4-with an unemployment rate of 4-6%6%

Page 8: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

UnemploymentUnemployment►Problems with using Unemployment Problems with using Unemployment

Rate as a MeasureRate as a Measure Does not factor in Does not factor in underemploymentunderemployment

– people working in jobs that are – people working in jobs that are beneath their qualificationsbeneath their qualifications►Ex. – someone with a college degree Ex. – someone with a college degree

working part time for $8.00 an hourworking part time for $8.00 an hour Does not factor in Does not factor in discouraged discouraged

workers – workers – people who can’t find a job, people who can’t find a job, and are so frustrated that they quit and are so frustrated that they quit lookinglooking

Page 9: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

InflationInflation

►Inflation is a Inflation is a general general increase in increase in pricesprices Movie Ticket in Movie Ticket in

1950 - $0.251950 - $0.25 Movie Ticket in Movie Ticket in

2005 - $7.502005 - $7.50

Page 10: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

InflationInflation

►Inflation reduces Inflation reduces Purchasing Purchasing Power – Power – the ability of your the ability of your money to purchase goods and money to purchase goods and servicesservicesSay you have $3.00, and Say you have $3.00, and tacos cost $1.00 eachtacos cost $1.00 each

Your money is worth 3 tacosYour money is worth 3 tacos

Page 11: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

InflationInflation

►Inflation reduces Inflation reduces Purchasing Purchasing Power – Power – the ability of your the ability of your money to purchase goods and money to purchase goods and servicesservices If you hold your $3.00 for a If you hold your $3.00 for a few years, and prices inflate few years, and prices inflate to $1.50 for tacos…to $1.50 for tacos…

Your money is worth 2 tacos!Your money is worth 2 tacos!

Page 12: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

InflationInflation

►Measuring InflationMeasuring Inflation Level of Prices is calculated by Level of Prices is calculated by

using using Price IndexesPrice Indexes►Consumer Price Index – Bureau Consumer Price Index – Bureau of Labor Statistics chooses a of Labor Statistics chooses a “market basket” of commonly “market basket” of commonly bought goods, and tracks bought goods, and tracks changes in pricechanges in price

Page 13: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

InflationInflation

►CPI = CPI = Current PriceCurrent Price X 100 X 100

Base Period PriceBase Period Price

Page 14: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

InflationInflation►Types of InflationTypes of Inflation

Creeping InflationCreeping Inflation►1-3% per year, causes no problems1-3% per year, causes no problems

Chronic InflationChronic Inflation►Steady increase each month, takes Steady increase each month, takes away incentive to save and investaway incentive to save and invest

HyperinflationHyperinflation►Out of control, prices could double Out of control, prices could double every monthevery month

►Leads to total economic collapseLeads to total economic collapse

Page 15: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

InflationInflation

►Causes of InflationCauses of InflationQuantity TheoryQuantity Theory►Having too much money in the Having too much money in the economy causes inflationeconomy causes inflation►Money supply should be Money supply should be tightly regulated by the tightly regulated by the governmentgovernment

Page 16: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

InflationInflation

►Causes of InflationCauses of InflationDemand-Pull TheoryDemand-Pull Theory►Demand for goods exceeds Demand for goods exceeds existing suppliesexisting supplies►Businesses, thus, raise their Businesses, thus, raise their pricesprices

Page 17: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

InflationInflation►Causes of InflationCauses of Inflation

Cost-Push TheoryCost-Push Theory►As costs go up for producers, As costs go up for producers, they increase their pricesthey increase their prices►Ex. – Employees get a raise, so Ex. – Employees get a raise, so to cover the additional cost, JC to cover the additional cost, JC Penny raises its prices by 5%Penny raises its prices by 5%►This trend is called a This trend is called a wage-wage-price spiralprice spiral

Page 18: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

PovertyPoverty

►Poverty can mean different things to Poverty can mean different things to different peopledifferent people

►Defined by the Census Bureau as Defined by the Census Bureau as “total income less than the amount “total income less than the amount needed to satisfy the family’s needed to satisfy the family’s minimum needs”minimum needs”

►Census Bureau sets the Census Bureau sets the poverty poverty thresholdthreshold – income level below which – income level below which family is considered impoverishedfamily is considered impoverished

Page 19: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

PovertyPoverty

►Sample Poverty Thresholds Sample Poverty Thresholds (U.S.)(U.S.)Single parent, one child = Single parent, one child = $13,020$13,020

Two parents, two children = Two parents, two children = $19,257$19,257

Page 20: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

PovertyPoverty

►Poverty Rate - % of a group that Poverty Rate - % of a group that falls below the poverty thresholdfalls below the poverty threshold U.S. poverty rate is 12.7% (2004)U.S. poverty rate is 12.7% (2004)

►Poverty Rates help show factors Poverty Rates help show factors that may contribute to povertythat may contribute to poverty

Page 21: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

PovertyPoverty

►Poverty Rates of Various Poverty Rates of Various Population Groups (U.S.)Population Groups (U.S.) White = 8.6%White = 8.6% Black = 24.7%Black = 24.7% Hispanic = 21.9%Hispanic = 21.9% 2 Parent Households = 5.5%2 Parent Households = 5.5% Single Parent (Female) Single Parent (Female)

Household = 31.6%Household = 31.6%

Page 22: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

PovertyPoverty

►Causes of PovertyCauses of Poverty Lack of EducationLack of Education►Median income for high school Median income for high school dropout = $18,144dropout = $18,144►Median income for high school Median income for high school grad or GED = $25,360grad or GED = $25,360►Median income for 4 year Median income for 4 year college grad = $42,404college grad = $42,404

Page 23: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

PovertyPoverty

►Causes of PovertyCauses of PovertyLocationLocation►Higher income jobs are Higher income jobs are located in suburban areaslocated in suburban areas►Large numbers of Large numbers of minorities concentrated in minorities concentrated in inner cities, with no means inner cities, with no means to commuteto commute

Page 24: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

PovertyPoverty

►Causes of PovertyCauses of Poverty Racial/Gender DiscriminationRacial/Gender Discrimination►Women earn $0.75 for every Women earn $0.75 for every dollar men makedollar men make►Blacks and Hispanics make $0.60 Blacks and Hispanics make $0.60 for every dollar whites makefor every dollar whites make►Result of education, location Result of education, location disparities, but also discriminationdisparities, but also discrimination

Page 25: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

PovertyPoverty

►Causes of PovertyCauses of Poverty Economic ShiftsEconomic Shifts►Laborers frequently lose their Laborers frequently lose their jobs as new technology jobs as new technology replaces themreplaces them►Without education and Without education and training, they can become left training, they can become left out of the new workforceout of the new workforce

Page 26: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

PovertyPoverty

►Causes of PovertyCauses of PovertyShifts in Family StructureShifts in Family Structure►Divorce rate continues to Divorce rate continues to rise, and single parent rise, and single parent families are much more families are much more likely to be impoverishedlikely to be impoverished

Page 27: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

Income DistributionIncome Distribution

►Income Distribution – how the Income Distribution – how the nation’s total income is nation’s total income is distributed among the distributed among the populationpopulationShows gap between rich and Shows gap between rich and poorpoor

Page 28: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

Income DistributionIncome Distribution

►Calculating Income DistributionCalculating Income DistributionDivide the nation into 5 parts Divide the nation into 5 parts based on income (ex. Highest based on income (ex. Highest 55thth, next highest 5, next highest 5thth, etc.), etc.)

Total the incomes of each of Total the incomes of each of the 5 partsthe 5 parts

Compute % of income each Compute % of income each group hasgroup has

Page 29: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

Income DistributionIncome Distribution

►Graphing Income DistributionGraphing Income DistributionThe Lorenz Curve shows how The Lorenz Curve shows how “unequal” the distribution is“unequal” the distribution is

Page 30: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are
Page 31: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

Income DistributionIncome Distribution

►U.S. Income DistributionU.S. Income DistributionLowest 5Lowest 5thth – 3.6% – 3.6%Second 5Second 5thth – 8.9% – 8.9%Third 5Third 5thth – 15% – 15%Fourth 5Fourth 5thth – 23.2% – 23.2%Highest 5Highest 5thth – 49.4% – 49.4%

Page 32: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

Why the Income Gap?Why the Income Gap?

►Differences in Skill and Effort – Differences in Skill and Effort – Workers with higher skill levels Workers with higher skill levels work more hours at more work more hours at more demanding jobsdemanding jobs

►Inheritances – many Americans Inheritances – many Americans inherit large sums of money and inherit large sums of money and invest it, producing more incomeinvest it, producing more income

Page 33: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

How to Fix PovertyHow to Fix Poverty

►No “for sure” solution, but No “for sure” solution, but many suggestionsmany suggestionsEnterprise Zones – Enterprise Zones – government lifts all taxes in government lifts all taxes in run-down areas, thus run-down areas, thus encouraging new businessesencouraging new businesses

Page 34: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

How to Fix PovertyHow to Fix Poverty

►No “for sure” solution, but No “for sure” solution, but many suggestionsmany suggestionsEmployment Assistance – Employment Assistance – government creates job-government creates job-training programs for workers training programs for workers who lack skills and institutes who lack skills and institutes a minimum wagea minimum wage

Page 35: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

How to Fix PovertyHow to Fix Poverty

►No “for sure” solution, but No “for sure” solution, but many suggestionsmany suggestionsWelfare ReformWelfare Reform►Welfare – government gives Welfare – government gives poor people money to cover poor people money to cover basic needs, such as food, basic needs, such as food, health care, etc.health care, etc.

Page 36: Chapter 13: Economic Challenges Unemployment 4 Types of Unemployment 4 Types of Unemployment Frictional Unemployment Frictional Unemployment People are

How to Fix PovertyHow to Fix Poverty

►No “for sure” solution, but No “for sure” solution, but many suggestionsmany suggestionsWelfare ReformWelfare Reform►Reform is labeled “workfare” – Reform is labeled “workfare” – a program to give temporary a program to give temporary assistance until the recipient assistance until the recipient can find a jobcan find a job