- High levels of unemployment tend to be accompanied by low levels of productivity
growth.
- During recessions, productivity growth is low. As the economy starts recovering,
productivity growth rises fast.
- During the oil shocks, total factor productivity growth was negative.
- There are some important differences in productivity growth relative to the values in
Table 3.1 in the textbook. Most notably, in 1986 and 1987 we obtain negative productivity
growth, whereas Table 3.1 displays positive growth. Similarly, in 1992 we obtain positive
growth, while in Table 3.1 productivity growth is negative.
Question 2
(a)
At any date, 25 people are unemployed: 5 who have lost their jobs at the start of the
month and 20 who have lost their jobs either on January 1 or July 1. The unemployment rate is
25/500
0.05, or 5%.
(b)
Each month, 5 people have one-month spells. Every six months, 20 people have
six-month spells. The total number of spells during the year is
5
12
20
2
100. Sixty
of the spells (60% of all spells) last one month, while 40 of the spells (40% of all spells) last
six months.
(c)
The average duration of a spell is
0.60
1
month
0.40
6
months
3
months
.
(d)
On any given date, there are 25 people unemployed. Twenty of them (80%) have
long spells of unemployment, while 5 of them (20%) have short spells.
Question 3
(a)
Total hours worked per week
1900
workers
40
hours per worker
76,000
hours per week
.
Total output per week
76,000
total hours per week
10
units of output per
hour
760,000
units of output
. The unemployment rate is 100
unemployed
/2000
labor
supply
0.05, or 5%.
(b)
Employment falls 4% from 1900 to:
1
−
0.04
1900
1824. The labor force
falls 0.2% from 2000 to:
1
−
0.002
2000
1996. With a labor force of 1996 and
employment of 1824, unemployment is 1996
−
1824
172. The unemployment rate is
172/1996
0.086, or 8.6%. Hours worked per employed worker falls 2.5% from 40 to:
1
−
0.025
40
39.
Total hours per week
39
hours per worker
1824
workers
71,136. So total hours per week falls by
76,000
−
71,136
/76,000
0.064, or
6.4%. Total output per week falls 1.4% for every 1% drop in hours, so output falls by
6.4%
1.4
8.96%. Since output was 760,000, it now falls to
760,000
1