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Measuring the Unemployment Rate and the Labor Force Participation Rate. The Household Survey. Labor force The sum of employed and unemployed workers in the economy. Employed can be in any job -- part-time, underemployed - PowerPoint PPT Presentation
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Labor force The sum of employed and unemployed workers in the economy.
•Employed can be in any job -- part-time, underemployed
Unemployment rate The percentage of the labor force that is unemployed: not working and looking.
Measuring the Unemployment Rate and the Labor Force Participation Rate
The Household Survey
Discouraged workers: Available for work but haven’t looked for a job (for the past four weeks) because they believe no jobs are available for them.
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The Employment Status of the Civilian Working-Age Population, April 2007
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100Number of unemployed
Unemployment rateLabor force
• Unemployment rate: the percentage of the labor force that is unemployed … not working and looking.
• Labor force participation rate: the percentage of the working-age civilian population in the labor force.
100Labor force
Labor force participation rateWorking-age population
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Solved Problem 8-1What Happens if You Include the Military?
In the BLS household survey, people on active military service are not included in the totals for employment, the labor force, or the working-age population. Suppose people in the military were included in these categories.
100Labor force
Working-age population
100Number of unemployed
Labor force
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FIGURE 8-2
Trends in the Labor Force Participation Rates of Adult Men and Women Since 1948
Trends in Labor Force Participation
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LENGTH OF TIME UNEMPLOYED PERCENTAGE OF TOTAL UNEMPLOYED
Less than 5 weeks 35.6%
5 to 14 weeks 31.3
15 to 26 weeks 15.7
27 weeks or more 17.5
How Long Are People Usually Unemployed?
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Household and Establishment Survey Data for March and April 2007
HOUSEHOLD SURVEY ESTABLISHMENT SURVEY
MARCH APRIL CHANGE MARCH APRIL CHANGE
EMPLOYED 146,254,000 145,786,000 −468,000 137,596,000 137,684,000 +88,000
UNEMPLOYED 6,724,000 6,801,000 +77,000
LABOR FORCE 152,979,000 152,587,000 −392,000
UNEMPLOYMENT RATE 4.4% 4.5% +0.1%
The Establishment Survey: Another Measure of Employment
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© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e. 8 of 36
Learning Objective 8.1
Establishments Creating and Eliminating Jobs, April–June 2006
NUMBER OF ESTABLISHMENTS
NUMBER OF JOBS
ESTABLISHMENTS CREATING JOBS
Existing establishments 1,558,000 6,286,000
New establishments 360,000 1,475,000
ESTABLISHMENTS ELIMINATING JOBS
Existing establishments 1,543,000 5,937,000
Closing establishments 341,000 1,358,000
Measuring the Unemployment Rate and the Labor Force Participation Rate
Job Creation and Job Destruction Over Time
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FIGURE 8-3
Unemployment Rates in the United States by Demographic Group, April 2007
Unemployment Rates for Demographic Groups
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Frictional Unemployment and Job SearchFrictional unemployment Short-term unemployment that arises from the process of matching workers with jobs.
Types of Unemployment
Structural unemployment Unemployment because of persistent mismatch between worker skills and characteristics and job requirements.
•Declining industries and regions / Expanding industries and regions
Cyclical unemployment Unemployment caused by a business cycle recession.
Cyclical Unemployment
Structural Unemployment
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Full Employment and “Natural” Rate of Unemployment
Natural rate of unemployment A normal rate of unemployment, consisting of frictional plus structural unemployment.
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© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e. 12 of 36
Average Unemployment Rates in the United States, Canada, Japan, and Europe, 1997–2006
International Comparisons
Government Policies and the Unemployment Rate
Explaining Unemployment
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Unemployment Insurance and Other Payments to the Unemployed
Explaining Unemployment
Minimum Wage Laws
Labor Unions / Work Rules
Seniority / Probation Periods
Efficiency Wages: higher-than-market wage that a firm pays to increase worker productivity wait unemployment.
•Reduce hiring costs, turnover, monitoring costs, shirking•Increase morale
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Measuring Inflation
Price level (= P) A measure of the average prices of goods and services in the economy.
Inflation rate (= π) The percentage increase in the price level from one year to the next.
Π = 100 x (Pt - Pt-1 ) / Pt-1
Price Indices of Note•GDP Deflator•Consumer Price Index
•Core CPI: CPI excluding energy and food•Producer Price Index
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Measuring Inflation
The Consumer Price Index
The CPI Market Basket, December 2006
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Consumer price index (CPI) An average of the prices of the goods and services purchased by the typical urban family of four.
The Consumer Price Index
BASE YEAR (1999) 2008 2009
PRODUCTQUANT-
ITY PRICEEXPEND-ITURES PRICE
EXPENDITURES
(ON BASE-YEAR
QUANTITIES) PRICE
EXPENDITURES (ON
BASE-YEAR QUANTITIES)
Eye exams 1 $50 $50 $100 $100 $85 $85
Pizzas 20 10 200 15 300 14 280
Books 20 25 500.00 25 500 27.50 550
Total $750 $900 $915
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The Consumer Price Index
APPLIED TO 2008 APPLIED TO 2009
120100750$
900$
122100750$
915$
CPI = 100year base in the esExpenditur
yearcurrent in the esExpenditur
122 120100 1.7%
120
2008 - 2009 Inflation Rate = Π = 100 x (P2009 - P2008 ) / P2008
Π =
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Is the CPI Accurate?
• Substitution bias.
• Increase in quality bias.
• Outlet bias.
• New product bias.
CPI inflation overstates the increase in the “Cost of Living”
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Using Price Indexes to Adjust for the Effects of Inflation
YEARNOMINAL AVERAGE HOURLY EARNINGS
CPI(1982-1984 = 100)
2004 $15.69 188.9
2005 16.13 195.3
2006 16.76 201.6
Value in constant 1983$ = Value in 2006$ x [CPI in 1983/CPI in 2006]
= Value in $2006$ x [100/CPI in 2006]
Calculating Real Average Hourly Earnings (Real Wage)
YEARNOMINAL AVERAGE HOURLY EARNINGS
CPI(1982-1984 = 100)
REAL AVERAGEHOURLY EARNINGS
(1982-1984 DOLLARS)
2004 $15.69 188.9 $8.31
2005 16.13 195.3 8.26
2006 16.76 201.6 8.31
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Real versus Nominal Interest Rates
Nominal interest rate The stated interest rate on a loan.
Real interest rate The nominal interest rate minus the inflation rate.
Real interest rate = Nominal interest rate − Inflation rate
Deflation A decline in the price level.
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Real versus Nominal Interest Rates
FIGURE 8-7
Nominal and Real InterestRates, 1970–2006
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Does Inflation Impose Costs on the Economy?
Inflation Affects the Distribution of Income– Arbitrary redistribution
• Debtors gain / Creditors lose disincentive to save• Pensioners lose
The Problem with Anticipated Inflation
Menu costs The costs to firms of changing prices.
The Problem with Unanticipated Inflation
Price Uncertainty fear Stagnation
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Consumer price index (CPI)
Cyclical unemployment
Deflation
Discouraged workers
Efficiency wage
Frictional unemployment
Inflation rate
Labor force
Labor force participation rate
Menu costs
Natural rate of unemployment
Nominal interest rate
Price level
Producer price index (PPI)
Real interest rate
Structural unemployment
Unemployment rate
K e y T e r m s