Chapter 8 notes - Chapter 8 Unemployment and Inflation...

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Chapter 8 Unemployment and Inflation Misery Index: adds together the inflation rate and the unemployment rate. Measuring the Unemployment Rate and the Labor Force Participation Rate Good news about unemployment usually causes stock prices to rise, and bad news causes stock prices to fall. Unemployment rate can also have political implications: an incumbent will be reelected if the unemployment rate is falling and defeated if the rate is increasing. The Household Survey Each month the US Bureau of Census conducts the “Current Population Survey” (household survey) to collect data about the unemployment rate. Labor Force : the sum of employed and unemployed workers in the economy. o People who do not have a job and are not actively looking for a job are not in the labor force. o Retirees, homemakers, full-time students, people on active military service, prisoners, and the mentally unstable. Unemployment Rate : the percentage of the labor force that is unemployed. o (Number of unemployed)/(labor force) x 100 Discouraged Workers : people who are available for work but have not looked for a job during the previous four weeks because they believe no jobs are available for them. Labor Force Participation Rate : the percentage of the working-age population in the labor force. o (labor force)/(working-age population) x 100 Problems with Measuring the Unemployment Rate The BLS counts part-time employees even though they’d prefer to hold full-time jobs. During an economic recession, the number of discouraged workers increases. Overstating the true extent of joblessness: o The current population survey does not verify the responses of people included in the survey. A person might claim to be actively looking for a job to remain eligible for government payments to the unemployed. Although the unemployment rate provides some useful information about the employment situation in the country, it is far from an exact measure of joblessness in the economy. Trends in Labor Force Participation Labor Force participation rate determines the amount of labor that will be available to the economy from a given population. o The higher the labor force participation rate, the more labor will be available and the higher a country’s levels of GDP and GDP per person. o The decline of the participation rate of males is due to males retiring earlier and younger men remaining in school longer. What Explains the Increase in “Kramers”? More than half of nonworking men receive Social Security Disability Insurance.
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The decline if labor force participation among adult men has been more than offset by a sharp increase in the labor force participation rate for adult women.
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