Chapter 9 Flashcards
the us department of labor reports estimates of
employment, unemployment, other stats, and is related to the labor force each month
labor force
the sum of employed and unemployed workers in the economy
the most watched statistic
unemployment rate
to be unemployed you must
be counted in the labor force
employed characteristics
worked 1 hour in reference week or were temporary away from job
unemployed characteristics
not currently at work, but available for work, and who has actively looked for work during the previous month
discouraged workers
people who are available to work but have not looked for a job during the previous 4 weeks and this is not considered unemployed
unemployment rate equation
of unemployed/# of labor force x 100 (for %)
this most-common measure of unemployment is known formally as BLS series
U-3
labor force participation rate equation
in the labor force/# working age population x 100
employment population ratio
of employed/# in working age population x 100
why is the BLS not a perfect measure of joblessness
- separating “unemployed” and “not in the labor force” requires judgement
-should we exclude “discourage workers? - only measures employment, not “intensity” of employment
-full time vs. part time
-people may be underemployed
example of underemployed
has a PHD in econ but drives a catabus
the BLS could also overstate unemployment
people might claim falsely to be actively looking for work
may claim not to be working to evade taxes or keep criminal activity unnoticed
U-6 is U-3
plus discouraged workers, underemployed workers, and some others
long periods of unemployment are especially bad for workers
skills decay, risk becoming discouraged and depressed
since 1948, the LFPR for adult men has
gradually declined
but for adult women, it has
increase greatly
why has women greatly increased LFPR rates
change in traditional roles, more women in college, getting married at older ages, more childcare, technology
why has men decreased LFPR rates
less manual labor jobs, stay in school longer, criminal records, marrying later (no urgency), women less likely to marry without a college degree, video games
reduction in hours worked- good
if we are very productive and can get same (or more) output in fewer hours
reduction in hours worked- bad
if there are structural problems preventing job seaters from working
establishment survey
asks companies who is on their payroll to calculate unemployment
disadvantages of establishment survey
self-employed people not surveyed, new firms omitted, information on employment only, numbers fluctuate depending in establishments (big revisions needed)
advantages of establishment survey
data is determined by actual payroll, not self-reporting like the household survey
we do not expect the numbers to be identical between the two survey’s because
different groups are measured
all surveys have measurement errors
frictional unemployment
“not bad”
occurs mostly because of job search:
entering or re-entering the labor force or in between jobs
seasonal unemployment
some jobs fluctuate in availability due to seasonal demand
to control seasonal unemployment, the BLS releases raw and seasonally adjusted employment which
some frictional unemployment actuals increases economic efficiently by allowing for better job matches
structural unemployment
unemployment that arises from a persistent mismatch between the skills and attributes of workers and the requirements of jobs
examples of structural unemployment
VCR repairman is unemployed today
-need retraining in order to get “modern” jobs
cyclical unemployment
unemployment causes by a business cycle recession
(in normal recoveries after a recession, unemployment due to cyclical factors will fail)
full employment
when all unemployment is due to frictional and structural factors
(always some type of unemployment)
natural rate of unemployment
the normal rate of unemployment, consisting of frictional unemployment and structural unemployment
between 5%-6%
what type of unemployment is this trying to reduce: the federal government’s trade adjustment assistance program offers training to workers whose firms laid them off as a result of competition from foreign firms
structural unemployment
what type of unemployment is this trying to reduce: subsidize new hires
frictional unemployment
government policies that increase unemployment
unemployment insurance
“extreme” minimum wage laws
if unemployment insurance payments are available and you just lost your job
you will be more likely to search for a better job than just taking the first job you see
economists believe that high unemployment rates correspond
with more generous unemployment insurance
minimum wage laws are designed to help low-income workers; but
at some point, raising the wage that firms must pay will result in them hiring fewer workers
relatively few full-time adults earn minimum wage, the group most likely to receive minimum wage is
teenagers
unemployment only causes small
wage increases and that with a 10% increase, only 2% reduce teenage employment
labor unions goal
bargain with employers for higher wages and better working conditions
union workers are probably not
a significant cause of unemployment in US
efficiency wage
an above-market wage that a firm pays to increase workers’ productivity
why would a firm pay workers wages that are higher than the market wage?
motivated to perform well and keep job
reduces turnover and costly hiring
above-market wages may make
frictional unemployment longer
-firm won’t hire as many people as quickly due to higher wages
price level
a measure of the average prices of goods and services in the economy
inflation rate
the % increase in the price level from one year to the next
two commonly-used measures
- the consumer price index (CPI)
- the producer price index (PPI)
consumer price index
a measure of the average change over time in the prices a typical urban family of four pays for the goods and services they purchase
what you need to calculate CPI in a given year
- a “basket” of goods
- fixed quantity from base year
- prices from current and base years
cpi=
expenditures in the current year/expenditures in the base year x 100
inflation rate is calculated through
percentage change formula
two measures of inflation
GDP deflator and CPI
To use the GDP deflator
need to find nominal and real GDP in each year, and take the percentage change of the GDP deflator to find inflation
economic growth is typically measured by changes in real GDP per capita over time and want
to measure production and output changes (NOT price increaes)
CPI is NOT
looking at production, just at price increases of the “basket”
CPI just includes
consumer prices
-not government purchases
if you want to get a measure of how inflation affects your daily spending,
use CPI (also known as cost of living index)
CPI inflation is sometimes used to
generate “fair” increases in wages and government benefits
substitution bias
consumers may change their purchasing habits, not buy as many goods if price is higher
increase in quality bias
products like cars and computers have become more durable and better quality over time
new product bias
the basket of goods changes only every 10 years
example of new product bias
streaming services
outlet bias
increases in purchases from discount stores like sam’s club and costco or the internet are not incorporated into the CPI (still uses full-retail price)
for the biases, economists believe that
CPI overstates true inflation by 0.5 to 1 percentage points
producer price index
an average of the prices received by producers of goods and services at all stages of the production process
PPI can give an early warning of
future movements in consumer prices
the current standard base “year” for the CPI is an average of 1982-1984 prices. values like wages in current-year dollars are called
nominal variables
if we take the nominal variable and adjust it for inflation
real variable
the salary of $35,000 from 1999 would be
$53,709 in 2019
a $1,000 loan paid back in a year will be paid back with 6% interest would be
$1,060
real interest=
nominal interest rate- inflation rate
if there is 6% nominal interest rate, if prices rise by 2% from this year to next, then what is the real interest rate
6%-2%=4%
in 2009, the real interest rate was above the nominal interest rate means the
CPI was negative then, indicating a rare deflation, or decrease in the price level
how does inflation affect the distribution of income and wealth
unlikely that everyone’s wages would increase at the same rate
many people have long-term contracts with wages in nominal terms
cash is a nominal asset, if you a lot of cash, then inflation causes a decrease in your real wealth
