Transcript Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.

Chapter
8
Unemployment
and Inflation
Prepared by:
Fernando & Yvonn Quijano
© 2008 Prentice Hall Business Publishing Economics R. Glenn Hubbard, Anthony Patrick O’Brien, 2e.
Learning Objective 8.1
Measuring the Unemployment Rate
and the Labor Force Participation Rate
The Household Survey
Chapter 8: Unemployment and Inflation
Labor force The sum of employed
and unemployed workers in the
economy.
Unemployment rate The percentage
of the labor force that is unemployed.
Discouraged workers People who are
available for work but have not looked for a
job during the previous four weeks
because they believe no jobs are available
for them.
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Learning Objective 8.1
Measuring the Unemployment Rate
and the Labor Force Participation Rate
Chapter 8: Unemployment and Inflation
The Household Survey
FIGURE 8-1
The Employment Status of the Civilian
Working-Age Population, April 2007
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Learning Objective 8.1
Measuring the Unemployment Rate
and the Labor Force Participation Rate
The Household Survey
Chapter 8: Unemployment and Inflation
• The unemployment rate measures the
percentage of the labor force that is unemployed.
Number of unemployed
100  Unemployment rate
Labor force
• The labor force participation rate measures the
percentage of the working-age population in the
labor force.
Labor force
100  Labor force participation rate
Working-age population
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Learning Objective 8.1
Measuring the Unemployment Rate
and the Labor Force Participation Rate
Chapter 8: Unemployment and Inflation
Problems with Measuring the Unemployment Rate
Although the BLS reports the unemployment
rate measured to the tenth of a percentage
point, it is not a perfect measure of the current
state of joblessness in the economy.
The unemployment rate provides some useful
information about the employment situation in
the country, but it is far from an exact measure
of joblessness in the economy.
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Learning Objective 8.1
Measuring the Unemployment Rate
and the Labor Force Participation Rate
Trends in Labor Force Participation
FIGURE 8-2
Chapter 8: Unemployment and Inflation
Trends in the Labor Force
Participation Rates of Adult
Men and Women Since 1948
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Learning Objective 8.1
Making
the
Chapter 8: Unemployment and Inflation
Connection
What Explains the Increase
in “Kramers”?
Why do more men seem to be adopting Kramer’s
lifestyle?
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Learning Objective 8.1
Measuring the Unemployment Rate
and the Labor Force Participation Rate
Unemployment Rates for Demographic Groups
FIGURE 8-3
Chapter 8: Unemployment and Inflation
Unemployment Rates in the United States
by Demographic Group, April 2007
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Learning Objective 8.1
Measuring the Unemployment Rate
and the Labor Force Participation Rate
How Long Are People Usually Unemployed?
Table 8-1
Chapter 8: Unemployment and Inflation
Duration of Unemployment
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
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Learning Objective 8.1
Measuring the Unemployment Rate
and the Labor Force Participation Rate
The Establishment Survey: Another Measure of Employment
Chapter 8: Unemployment and Inflation
Table 8-2
Household and
Establishment Survey Data
for March and April 2007
HOUSEHOLD SURVEY
MARCH
EMPLOYED
UNEMPLOYED
LABOR FORCE
UNEMPLOYMENT RATE
ESTABLISHMENT SURVEY
APRIL
CHANGE
146,254,000 145,786,000 −468,000
6,724,000
6,801,000
MARCH
137,596,000
APRIL
CHANGE
137,684,000 +88,000
+77,000
152,979,000 152,587,000 −392,000
4.4%
4.5%
+0.1%
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Learning Objective 8.2
Types of Unemployment
FIGURE 8-4
Chapter 8: Unemployment and Inflation
The Annual Unemployment Rate in
the United States, 1950–2006
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Learning Objective 8.2
Types of Unemployment
Frictional Unemployment and Job Search
Chapter 8: Unemployment and Inflation
Frictional unemployment Short-term
unemployment that arises from the
process of matching workers with jobs.
Structural Unemployment
Structural unemployment Unemployment
arising from a persistent mismatch between the
skills and characteristics of workers and the
requirements of jobs.
Cyclical Unemployment
Cyclical unemployment Unemployment
caused by a business cycle recession.
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Learning Objective 8.2
Types of Unemployment
Chapter 8: Unemployment and Inflation
Full Employment
Natural rate of unemployment
The normal rate of unemployment,
consisting of frictional unemployment
plus structural unemployment.
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Learning Objective 8.3
Explaining Unemployment
Government Policies and the Unemployment Rate
Chapter 8: Unemployment and Inflation
Unemployment Insurance and Other
Payments to the Unemployed
In the United States and most other industrial countries,
the unemployed are eligible for unemployment
insurance payments from the government.
In the United States, these payments are equal to about
half the average wage.
Unemployment insurance helps the unemployed
maintain their income and spending, which lessens the
personal hardship of being unemployed and also helps
reduce the severity of recessions.
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Learning Objective 8.3
Explaining Unemployment
Government Policies and the Unemployment Rate
Minimum Wage Laws
Chapter 8: Unemployment and Inflation
In 1938, the federal government enacted a national
minimum wage law.
If the minimum wage is set above the market wage
determined by the demand and supply of labor, the
quantity of labor supplied will be greater than the
quantity of labor demanded.
Economists agree that the current minimum wage is
above the market wage for some workers, but they
disagree on the amount of unemployment that has
resulted.
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Learning Objective 8.3
Explaining Unemployment
Labor Unions
Chapter 8: Unemployment and Inflation
Labor unions are organizations of workers that
bargain with employers for higher wages and better
working conditions for their members.
Efficiency Wages
Efficiency wage A higher-thanmarket wage that a firm pays to
increase worker productivity.
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Learning Objective 8.3
Making
the
Chapter 8: Unemployment and Inflation
Connection
Why Does Costco Pay Its Workers
So Much More Than Wal-Mart Does?
Costco’s relatively high wages and health benefits reduce
employee turnover and raise morale and productivity.
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Learning Objective 8.4
Measuring Inflation
The Consumer Price Index
FIGURE 8-6
Chapter 8: Unemployment and Inflation
The CPI Market Basket,
December 2006
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Learning Objective 8.4
Measuring Inflation
The Consumer Price Index
Chapter 8: Unemployment and Inflation
Consumer price index (CPI) An average
of the prices of the goods and services
purchased by the typical urban family of
four.
BASE YEAR (1999)
PRODUCT
Eye examinations
QUANTIT
Y
PRICE
2008
EXPENDITURES
PRICE
EXPENDITURES
(ON BASE-YEAR
QUANTITIES)
2009
PRICE
EXPENDITURE
S (ON BASEYEAR
QUANTITIES)
1
$50.00
$50.00
$100.00
$100.00
$85.00
$85.00
Pizzas
20
10.00
200.00
15.00
300.00
14.00
280.00
Books
20
25.00
500.00
25.00
500.00
27.50
550.00
Total
$750.00
$900.00
$915.00
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Learning Objective 8.6
Real versus Nominal Interest Rates
Chapter 8: Unemployment and Inflation
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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Learning Objective 8.6
Real versus Nominal Interest Rates
FIGURE 8-7
Chapter 8: Unemployment and Inflation
Nominal and Real Interest
Rates, 1970–2006
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