Unformatted text preview: Macroeconomics Macroeconomics is the study of economywide phenomena such as unemployment, inflation, interest rates, and government stabilization policies. Unemployment Section Checklist When you have completed your study of this section, you should be able to Define the unemployment rate and other labor market indicators. Describe the trends and fluctuations in the indicators of labor market performance in the United States. Describe the sources and types of unemployment, define full employment, and explain the link between unemployment and real GDP. Labor Market Definitions Working Age population is the number of people age 16 and older who are not: In jail Hospitalized Other institutions Armed Forces Labor Force consists of the employed and unemployed. Labor Market Definitions To be considered Employed a person Would have worked at least 1 hour in a paid job or 15 hours unpaid in family business. Was not working but who had jobs from which they were temporarily absent. Determined by the Current Population Survey Establish the age and job market status of each member of the household. Labor Market Definitions Unemployed persons are those who Had no job in the previous week Are available to work AND either Made an attempt to find work or Are waiting to be recalled Labor Market Indicators The unemployment rate The percentage of people in the labor force who are unemployed. Number of people unemployed Labor force Unemployment rate = x 100 Unemployment rate = (7.3 million/148.9 million) x 100 = 4.9% Unemployment Rates (1965-2005) Labor Market Indicators The labor force participation rate The percentage of the working-age population who are members of the labor force. Labor force x 100 Working-age population Labor force participation rate = Labor force participation rate = (148.9 million/225.7 million) x 100 = 66.0% Labor Force Participation Rates Participation Rates The participation rate increased from 59 percent during the 1960s to 67 percent the 2000. Since 2000, the participation rate has fallen slightly. Between 1965 and 1999, the participation rate for women increased from 39 percent to 60 percent. Between 1965 and 2005, the participation rate for men decreased from 81 percent to 73 percent. More Labor Market Definitions Discouraged workers Those who have dropped out of the labor force and are no longer looking for a job Hidden unemployed Those working part time because they are unable to find full time jobs. Full-time and Part-time Workers Full-time workers People who usually work 35 hours or more a week Part-time workers People who usually work less than 35 hours a week. Part-time workers for economic reasons Part-time workers for non-economic reasons Part-time Workers Part-time work is attractive to workers because they Balance family with work Can do "other things" Part-time work is attractive to employers because Benefits are not paid to part-time workers Less government regulation of part-time workers Aggregate and Average Hours Between 1965 and 2005, the number of people employed doubled (up 100 percent) but aggregate hours increased by only 75 percent. The reason: average hours per worker decreased. Calculating Aggregate Hours Aggregate Hours The total number of hours worked by all the people employed, both full time and part time, during a year. In May 2005, 141.6 million people worked an average of 33.9 hours per week. With 50 workweeks per year, aggregate hours were 141.6 million 33.9 50 = 240 billion hours Types of Unemployment Frictional Normal labor changes Hiring and firing Structural Changes in required technological skill sets International competition (change the locations of jobs) Outsourcing Types of Unemployment Seasonal The unemployment that arises because of seasonal weather patterns
Ski instructors and camp counselors Vegetable and fruit pickers Teachers Cyclical The fluctuating unemployment over the business cycle that increases during a recession and decreases during an expansion Unemployment by Race and Age Full Employment and the Natural Unemployment Rate Full Employment When there is no cyclical unemployment or, equivalently, when all the unemployment is frictional, structural, or seasonal. Natural unemployment rate The unemployment rate when the economy is at full employment. Unemployment and Real GDP Cyclical unemployment is the fluctuating unemployment over the business cycle At full employment, there is no cyclical unemployment. At the business cycle trough, cyclical unemployment is positive. At the business cycle peak, cyclical unemployment is negative. POTENTIAL GDP Potential GDP is the level of real GDP that the economy would produce if it were at full employment. Because the unemployment rate fluctuates around the natural unemployment rate, real GDP fluctuates around potential GDP:
When the unemployment rate is above the natural rate, real GDP is below potential GDP. When the unemployment rate is below the natural unemployment rate, real GDP is above potential GDP. ...
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