Chapter 11: Unemployment & Labor Force Participation Flashcards
What are unemployed workers?
Adults who do not have a job but who are looking for work
To be counted as unemployed, a person must be:
- 16 years or older
- Not in prison
- A civilian
- Looking for work
What is the labor force?
All workers who are employed and unemployed
What is the labor force participation rate?
the percentage of adults in the labor force who are working or actively looking for work
How do we calculate the unemployment rate?
(unemployed/labor force)*100
How do we calculate the Labor Force Participation Rate?
(Labor force/adult population)*100
What is the labor force participation rate determined by?
- Lifecycle effects and demographics
2. Incentives
LFPR is positively related to _____.
real income
LFPR is negatively related to _______.
income tax rates and non worker benefits
What are discouraged workers?
Workers who have given up looking for work but would still like a job
Are discouraged workers included in the labor force?
No
What does it mean to be underemployed?
Individuals have skills but work in low or no-skilled jobs;
Also part time workers that want to be full time
From an individual’s perspective what can unemployment lead to?
- Higher rates of stress
- Higher rates of suicide
- Lower rates of measure happiness
From a macroeconomics perspective, what does unemployment indicate about the economy?
That the economy is underperforming
What is frictional unemployment?
Short term unemployment caused by the ordinary difficulties of matching employe to employer
Frictional unemployment is never caused by a scarcity of information.
True or False
False
What is “creative destruction?”
Innovation and competition dives progress, creating new jobs and destroying old ones
What is structural unemployment?
Persistent long term unemployment caused by long lasing shocks or permanent features of an economy that make it more difficult for some workers to find jobs
Why do employers take long unemployment spells as a negative signal?
They attribute it to laziness or a lack of motivation in the worker to find a job
The longer a worker remeains unemployed, the longer their skills atrophy.
True or False?
True
What are two factors that affect structural unemployment?
- Large, long-lasting shocks that require the economy to restructure.
- Labor regulations.
Including unemployment benefits, minimum
wages, powerful unions, and employment
protection laws.
Unemployment insurance is a form of_______.
Unemployment benefits
What effect do unemployment benefits have on workers?
It reduces the incentives for workers to search for and take new jobs
What is the price floor for the labor market known as?
Minimum wage
What is the median wage?
The wage such that half of all workers earn wages below that amount and half earn above it
What is a union?
An association of workers that bargains collectively with employers over wages, benefits, and working conditions
What is the employment at will doctrine?
The policy that an employee may quit and an employer may fire an employee at any time and for any reason
What effect do employment protection laws have on employees?
- Serves as insurance for workers with full time jobs
- Makes labor markets less flexible
- Increases duration of unemployment
- Increases unemployment rates among young “risky” workers
What is the “rigidity of employment index?”
It summarizes hiring and firing costs as well as how easy it is for firms to adjust hours of work
What does a higher index number mean on the rigidity of employment index?
It is more expensive to hire and fire workers and more difficult to adjust hours
What are active labor market policies?
Policies that focus on getting unemployed workers back to work, such as job search assistance, job retraining programs and work tests
What are work tests?
Tests to prove that you are actively searching for work
What is cyclical unemployment?
Unemployment that is correlated with the business cycle
For what 2 reasons does unemployment increase dramatically during a recession?
- When GDP falls, firms lay off employees
2. When workers are idle, the economy is not maximizing growth
What is the natural unemployment rate?
The rate of structural plus frictional unemployment
Who are the baby boomers?
People born during the high birth rate years of 1946-1964
