Chapter 8: Unemployment Flashcards
Labor Force
Employed + Unemployed
Discouraged Workers
People that want a job but are too discouraged to seek unemployment. Excluded from the Unemployment Rate
Unemployed
Out of work, and actively looking for a job
Employed
Currently working for pay
Out of the Labor Force
Out of paid work, but not actively looking for a job
Underemployment
A person not having enough work, or not doing work that makes full use of their skills and abilities
Hidden Unemployed
Workers not employed or not fully employed, that are excluded from the official Unemployment Rate. Includes the underemployed, and discouraged workers.
Unemployment Rate (calculation)
(Unemployed People) / (Total Labor Force) x 100%
Labor Force Participation Rate
calculation
(Labor Force) / (Total Adult Population) x 100%
Percentage out of Labor Force
calculation
(People out of Labor Force) / (Total Adult Population) x 100%
CPS / Current Population Survey
Measures % of labor force that is unemployed
EPS / Establishment Payroll Survey
Payroll survey that measures net change in jobs created for the month
What was the unemployment rate during the Great Depression of the 1930s?
25%
What was the unemployment rate during the recession of 2007-2009?
10%
Why do the elderly have extremely low rates of unemployment?
Those who do not have a job often exit the labor force by retiring
Which racial group tends to have the highest unemployment rate?
African Americans / Blacks
What is an indirect reason that those with less education tend to have higher unemployment rates?
Education offers social networking connections to the labor market
Cyclical Unemployment
Unemployment variation caused by the typical business cycle between recession and expansion
Sticky-Downward Wages
Wages easily move up, not down
Implicit Contract
between employers/employees
Form of insurance. Employer will try to keep wages from falling when business is struggling, and employee will not expect huge salary increases when business is strong.
Efficiency Wage Theory
Worth it for employers to pay above market conditions. Increases employee productivity, and saves employer from the cost of retraining
Adverse Selection of Wage Cuts Argument
Employer that reduces wages for all workers across the board will lose the best workers, so better to chose who departs through layoffs and firings
Insider-Outsider Model
Those already working for firms are “insiders” while new employees are “outsiders”. A firm depends on its insiders, but cutting their wages will alienate them
Relative Wage Coordination Argument
Workers fight hard against wage cuts, as there is no decentralized way to ensure all workers receives an equal decline of wages in hard times, even if they were hypothetically open to this
Federal Reserve
Central Bank of the United States
nicknamed the Fed
Natural Rate of Unemployment
Unemployment that occurs when the economy is healthy. Occurs due to frictional and structural unemployment.
Frictional Unemployment
“Natural” unemployment that occurs as workers move between jobs. Not a negative thing.
Structural Unemployment
Occurs for individuals that have no jobs because they lack skills valued by the labor market, due to not learning skills or a shift in market demand
When is the economy considered to be at full employment?
When actual unemployment rate = natural unemployment rate
When was the US unemployment insurance program implemented?
1935
Who runs the Unemployment Insurance program?
It is a joint federal-state program
Established by federal law, which sets minimum standards
States do most administration, and pays benefits
Why does the European unemployment rate tend to be higher than the US?
- Generous welfare system in Europe
2. More red tape around hiring and firing in Europe
