Warm Up

What does this cartoon

mean?

Key Economic ConceptsTo be counted as employed, you must be working at least one hour a weekYou must be without work and seeking workThe labor force (LF) is the number of employed (E) plus the number of unemployed(U).The unemployment rate (UR) is the percentage of the labor force classified as unemployed. UR=100*(U/LF)

People unemployed who have stopped looking are “out of the labor force) and are not counted.

Current Events• http://www.bls.gov/bls/unemployment.htm

Once on the site:• Click on National Unemployment Rate• Scroll down and go to Frequently asked questions and click on • What are the Basic Concepts. : Read the whole page and take note of

facts you did not know or find interesting.

• Go back to Home Page and click on CPI. Complete questions on the board.

Current Events• http://www.ted.com/talks/mohamed_ali_the_link_between_unempl

oyment_and_terrorism.html

• The dangers of this lesson…

WHAT ABOUT THE UNDEREMPLOYED?

Three Types of Unemployment (Module 12 and 13) 1. Frictional

2. Structural3. Cyclical

How do we calculate unemployment?

Labor force=unemployed + employed

100x (unemployed)/(Labor force)

Business Cycles flows

#1. Frictional Unemployment•Temporarily unemployed or between jobs.

•Qualified workers with transferable skills but they aren’t working. Examples: • High school or college graduates looking

for jobs.• Individuals that were fired and are looking

for a better job. You’reFired!

http://www.hollywoodreporter.com/video/spongebob-youre-fired-sneak-peek-653852

Seasonal Unemployment•A specific type of frictional unemployment which is due to time of year and the nature of the job.•These jobs will come back

Examples: •Professional Santa Clause Impersonators

•Construction workers in Michigan

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http://dsc.discovery.com/tv-shows/bering-sea-gold/videos/bering-sea-gold-extended-sneak-peek.htm

#2. Structural Unemployment

•Changes in the structure of the labor force makes the worker’s skills obsolete and the jobs will not be coming back.•Workers must learn new skills to get a job.•The permanent loss of these jobs is called “creative destruction.”

Examples: •VCR repairmen•Carriage makers

Technological Unemployment•Type of structural unemployment where automation and machinery replace workers causing unemploymentExamples: •Auto assemblers fired as robots take over production

• Producers of Capital Goods (tractors) fire assembly workers

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The top 20 jobs that are in danger of computerisation, according to the Oxford report, are:1.Telemarketers2.Title examiners, abstractors and searchers3.Hand sewers4.Mathematical technicians5.Insurance underwriters6.Watch repairers7.Cargo and freight agents8.Tax preparers9.Photographic process workers and processing machine operators10.New Accounts clerks

11.Library technicians12.Data entry keyers13.Timing device assemblers and adjusters14.Insurance claims and policy processing clerks15.Brokerage clerks16.Order clerks17.Loan officers18.Insurance appraisers (auto damage)19.Umpires, referees and other sports officials

#3 Cyclical Unemployment

•Unemployment that results from economic downturns (recessions).•As demand for goods and services falls, demand for labor falls and workers are fired.

Examples: •Steel workers laid off during recessions.•Restaurant owners fire waiters after months of poor sales due to recession.

This sucks!

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Review: HOW TO CALCULATE UNEMPLOYMENT• Rule: Unemployed are those who are jobless, looking

for work and available to work.• IF NOT SEEKING WORK THEN NOT COUNTED AS

UNEMPLOYED

• Survey of 60K people done once a month• LABOR FORCE = total of those actually employed and

those who are unemployed

• Unemployment Rate = # of unemployed x 100• Labor Force

Two of the three types of unemployment are unavoidable:• Frictional unemployment (TEMPORARY)• Structural unemployment (OBSOLETE)

•Together they make up the natural rate unemployment (NRU).

America is at full employment if we have NRU. This is the normal amount of unemployment that we SHOULD have.

The Natural Rate of Unemployment (NRU)

Full employment means NO Cyclical unemployment!

Economists generally agree that unemployment rate of around 4 to 6 % is full employment.

4-6% Unemployment = NRU

Okun’s Law: When unemployment rises 1 percent above the natural rate, GDP falls by

about 2 percent

Rule: There is a negative relationship between unemployment and growth. Unemployment rises in a recession and usually falls during a period of economic expansion.

Unemployment Rates of Different Groups, 2007. It is much higher now for all groups but especially for non-college graduates.

The Effect of a Minimum Wage on the Labor Market

Unemployment Comparison for the last decade

Differences in state unemployment rate usually don’t last too long because people will move from a state with a high unemployment rate to one with a low unemployment rate

The natural rate in France and Germany is around 8–10%. Higher than America. Why?

• Some economists attribute difference to more generous unemployment benefits in European countries– U.S. unemployment benefits usually last for 6

months– Unemployment benefits in some European

countries are indefinite– Generous benefits reduce incentives to search

for a job

What’s wrong with the unemployment rate? Can hide actual unemployment rate: (Sept.2011 is 9.2%)

Discouraged job seekers-• Some people are no longer looking for a job

because they have given up.Part-Time Workers- • Someone who wants more shifts but can’t get

them is still considered employed.Race/Age Inequalities-• Hispanics – 11% for Sept. 2011

• But teenage rate is 27%• African American- 16% for Sept. 2011

• But teenage rate is 45%Illegal Labor-• Many people work under the table.

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Alternative Measures of Unemployment, 1994–2010 reveals that actual jobless number is much higher.

The Changing Makeup of the U.S. Labor Force 1948–2009

Structural Unemployment• Minimum wages - a government-mandated floor on the price of labor. In the U.S., the

national minimum wage in 2009 was $7.25 an hour.

• Unions - by bargaining for all a firm’s workers collectively (collective bargaining), unions can often win higher wages from employers than the market would have otherwise provided when workers bargained individually.

Structural Unemployment• Efficiency wages - wages that employers set above the equilibrium wage rate as an

incentive for better performance.

• Side effects of government policies - public policies designed to help workers who lose their jobs; these policies can lead to structural unemployment as an unintended side effect.

In class exercise