Chapter 8: Inflation and Unemployment Flashcards
Employment
The total number of people who are currently employed either full time or part time
Unemployment
the number of people who are actively looking for work (and have been in the past 4 weeks) but are not currently employed
What is the relationship between the business cycle and unemployment?
Unemployment tends to rise sharply during recession and tends to fall during expansions (but not always)
Labor Force
the sum of employment and unemployment
Unemployment Rate, u
(unemployed/labor force)*100 is the percentage of the total number of people in the labor force who are unemployed.
Participation rate
(labor force/population over 16 years and older) *100
is the percentage of the population aged 16 or older that is in the labor force.
What does the unemployment rate indicate?
how easy or difficult it is to find a job in the current state of the economy
In what measures is the unemployment rate an ineffective indicator?
It is not a literal measure of people who want a job but cannot find one because in some ways, the unemployment rate exaggerates the difficulty in finding jobs or downplays it
How can the unemployment rate overstate the true level of unemployment?
A worker who has been offered a job but has not yet accepted the position or begun work may be counted as unemployed (or if they are moving between job). The unemployment rate thus is never 0 and overstates the number of people who want a job but cannot find one
How can the unemployment rate understate the true level of unemployment?
Discouraged workers who have become depressed or are not searching actively for work in the last 4 weeks but would like to work are not counted in the unemployment rate
They are part of a larger group of marginally attached workers who would like to be employed, have looked in the recent past, but are not currently looking, and they too are not counted in unemployment rate
Underemployed workers are also not counted
Discouraged workers
As subset of marginally attached workers: Nonworking people who are capable of working but have given up looking for a job given the state of the job market (also perhaps due to location). i.e. a laid-off steel worker in a depressed steel town without the resources to move
Marginally Attached Workers
would like to be employed, have looked for a job in the recent past, but are not currently looking for work
Underemployed workers
the number of people who work part time because they cannot find full time jobs
While the BLS does not include discouraged, marginally attached, and underemployed workers in the main unemployment rate, what do they use to take these into account?
The BLS calculates “measures of labor underutilization” which includes these categories. The different rates run in parallel, giving an idea of how the economy is generally moving
How do unemployment rates differ in age groups?
Those between 25 and 54 (in the working prime) tend to have an easier time finding jobs than those below 24 or in retirement age
How can we evaluate the unemployment rate as an economic indicator
We can use it to determine overall labor market conditions and the ups and downs in the economy which impact lives. We cannot use it as an exact, literal measure of the people without work who want a job.
What is the main caveat regarding economic expansions and the unemployment rate?
the unemployment rate usually, BUT NOT ALWAYS, decreases in an expansion. In the last 3 recessions in the 1990s, early 2000s and the Great Recession, unemployment continued to expand well into the expansion
Why might unemployment continue to rise despite economic expansion?
The economy was growing but not fast enough to keep pace with unemployment
What is the relationship between economic growth rates and unemployment change rate?
Generally, as economic growth rates increase, unemployment change rates decrease and vice versa
Jobless Recovery
A period in which the Real GDP growth rate is positive but so too is the unemployment growth rate (unemployment is still rising)
Falling real GDP is ___ associated with a rising rate of unemployment
ALWAYS
Simply put, why does the natural rate of unemployment exist above 0%
jobs are always being created and destroyed
Job separation
terminations of employment that occur when a worker is fired or quits voluntarily. it does not need to be related to the business cycle.
What are two reasons for job separation?
Structural unemployment and poor management/bad luck
What are the two types of natural unemployment in modern economies?
frictional and structural
Frictional Unemployment
unemployment due to the time workers spend in the job search. A certain amount of frictional unemployment is inevitable due to the constant process of economic change and may even be a sign of a healthy, growing economy
The job search
Workers who spend time looking for employment are engaged in the job search
How might a certain level of frictional unemployment be a good sign?
It is a sign that workers are taking the time to find better jobs to improve productivity and therefore the productivity of the economy
How does frictional unemployment relate to joblessness
In times of low unemployment, a greater share of the rate is due to frictional unemployment and the time unemployed is less than if the unemployment was higher
