Unemployment Flashcards
What are the Labor Force Statistics produced by?
Bureau of Labor Statistics (BLS) in the U.S Department of Labor
What are the Labor Force Statistics based on? (2)
Based on:
- regular survey of 60,000 households
- “adult” population (16+)
What are the 3 groups that the BLS divides Civilian Noninstitutional population in?
Employed
Unemployed
Not in the Labor Force
Employed
A person who works at least 1 hour per week for pay or at least 15 hours per week as an unpaid worker in a family buisness
Unemployed
a person who is not currently employed but is actively looking for work
Not in the Labor Force
a person who is not looking for work, and who is not employed
Unemployment Rate
% of the labor force that is unemployed
u-rate= 100% x (Unemployed/ Total Labor Force)
Labor Force Participation Rate
% of the adult population that is in the labor force
Labor Force Participation Rate= 100% x [(Employed+ Unemployed) / Working Age Non-Institutionalized Population]
What is the Labor Force composed of?
employed and unemployed
Labor Force Statistics for different groups
The BLS publishes these statistics for demographic groups within the population
These data reveal widely different labor market experiences for different groups
For every $_ that a man makes a woman makes $_
$1; $0.78
What does the U-rate exclude or not measure very well?
• excludes discouraged workers • does not distinguish between full-time and
part-time work, or people working part time
because full-time jobs not available • some people misreport their work status in the
BLS survey
1/3 of the unemployed have been unemployed
< 5 weeks
2/3 of the unemployed have been unemployed
<14 weeks
20% of the unemployed have been unemployed
> 6 months
Which group of the unemployed is the most observed?
The long term group
There is always some unemployment, though the U-rate fluctuates from
year to year
The natural rate of unemployment
the normal rate of unemployment around which the actual unemployment rate fluctuates
Cyclical Unemployment
• the deviation (difference) of actual
unemployment from its natural rate • associated with business cycles
Explaining the natural rate: Frictional unemployment
- occurs when workers spend time searching for the jobs that best suit their skills and tastes
- Short- term for most workers
Explaining the natural rate: Structural Unemployment
- occurs when there are fewer jobs than workers
- Usually longer-term
Job search
the process of matching workers with appropriate jobs
Sectoral shifts
changes in the composition of
demand across industries or regions of the country
Government employment agencies
give out information about job vacancies to
speed up the matching of workers with jobs
Public Training Programs
aim to equip workers displaced from declining
industries with the skills needed in growing
industries.
Unemployment insurance (UI)
a govt program that partially protects workers’
incomes when they become unemployed
What does UI increase?
Frictional unemployment. People respond to incentives
UI benefits end when…
a worker takes a job, so workers have less incentive to search or take jobs while eligible to receive benefits.
The benefits of UI
reduces uncertainty over incomes
gives the unemployed more time to search,
resulting in better job matches and thus higher
productivity.
Structural unemployment occurs when
there are not enough jobs to go around
when wage is kept above equilibrium
What are the three things that regulate structural unemployment?
- Minimum wage laws
- Unions
- Efficiency Wages
Minimum Wage Laws
The minimum wage may exceed the eq.m wage for the least skilled or experienced workers causing structural unemployment.
What is bad about minimum wage?
Makes small businesses fire employees, keep a few also raises the prices of goods
What is good about minimum wage?
With higher wages people go and buy more, therefore helps the economy
Which component has a small part in the labor force and therefore cannot explain most unemployment?
Minimum wage laws
What is a union?
a worker association that bargains with employers over wages, benefits, and working conditions
What does the typical union worker earn?
20% higher wage and gets more benefit than a nonunion worker for the same type of work
What happens when unions raise the wage above equilibrium?
quantity of labor demanded falls and unemployment results
“Insiders”= workers who remain employed,
they are better off
“Outsiders”= workers who lose their jobs,
they are worse off
Some outsiders go to non-unionized labor
markets, which increases labor supply and
reduces wages in those markets
What do critics of unions say?
Unions - a type of cartel
Allocation of labor
• Inefficient - high union wages reduce
employment in unionized firms below the efficient level
• Inequitable - some workers benefit at the
expense of other workers.
Advocated of unions say
Unions - necessary antidote to the market power
of the firms that hire workers
• In the absence of a union, firms pay lower wages and offer worse working conditions
Unions - help firms respond efficiently to
workers’ concerns
• Keep a happy and productive workforce.
What is the theory of efficiency wages
firms voluntarily pay above-equilibrium wages to
boost worker productivity
Different versions of efficiency wage theory
suggest different reasons why firms pay high
wages.
What are the four reasons why firms might pay efficiency wages?
Worker health
Work turnover
Worker Quality
Worker Effort
Worker Health
In less developed countries, poor nutrition is a
common problem. Paying higher wages allows
workers to eat better, makes them healthier,
more productive
Worker Turnover
Hiring & training new workers is costly.
Paying high wages gives workers more
incentive to stay, reduces turnover.
Worker Quality
Offering higher wages attracts better job applicants,
increases quality of the firm’s workforce
Worker Effort
Workers can work hard or shirk. Shirkers are fired
if caught. Is being fired a good deterrent?
Depends on how hard it is to find another job.
If market wage is above eq’m wage, there aren’t
enough jobs to go around, so workers have more
incentive to work not shirk.
What is shirking?
if you aren’t doing your job
In which of the following cases do firms voluntarily choose to keep wages above the equilibrium level?
When there are efficiency wages
What happens to unemployment when: The govt eliminates the minimum wage
It goes down
Structural
What happens to unemployment when: The govt increases unemployment insurance benefits
It goes up
Frictional
What happens to unemployment when: A new law bans labor unions
It goes down
structural
What happens to unemployment when: More workers post their resumes at Monster.com,
and more employers use Monster.com to find
suitable workers to hire.
It does down
Frictional
What does the natural rate of unemployment consist of?
Frictional Unemployment
• it takes time to search for the right jobs
• occurs even if there are enough jobs to go around
Structural Unemployment
• when wage is above eq’m, not enough jobs
• due to min. wages, labor unions, efficiency
wages.
