Slowing human capital formulation we are not really becoming more knowledgeable

Slowing human capital formulation we are not really

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Slowing human capital formulation (we are not really becoming more knowledgeable than older generations) 2. Falling labor force participation rate 3. Rising inequality (many people receiving wage gains are at the upper end of the income level) 4. Innovation slow down From 1900-1957: Cars, telephones, airplanes, radio, etc. After 1957: Phones… Not as much Suggests slower growth for upcoming decades Impact on U.S. Only 20% of recruits look at GPA. Instead, they’re looking at ability to think, ability to work on a team, and good decisions. 2/3 of income inequality since 1980 is due to higher return on skills Section 3 o Part A: Measuring Unemployment and Employment Unemployment – One is unemployed if you’re not working and have been looking for a job for the past month Labor Force – All those working and who have been looking to work in the past month Unemployment Rate = (unemployed/labor force) x 100 Participation Rate = (labor force/those aged 16+) U.S. (As of February 2015) Unemployed: 8,705,000 Labor Force: 157,002,000 If discouraged workers (those who are not employed but gave up looking on work) started searching for a job again, the unemployment rate would rise o Part B: Other Measures of the Labor Market Underemployment Rate (U-6, broad measure) – Goes beyond the usual unemployment rate U-6 unemployment rate = (unemployed + marginally attached workers + part time but wants full time)/(labor force + marginally attached workers) Marginally Attached Workers – Looked for jobs in the past 12 months, but not the past month Current unemployment rate is 5.5%; Average since 1998 is 5.8%; Why complain? Employment is barely above 2007 level U6 unemployment rate is 11% (>1994 to 2008 values) 31% of the unemployed have been so for 27+ weeks (not seen from 1948 to 2008) Normal Rate of Unemployment – The rate of unemployment when cyclical unemployment is 0 Then unemployment rate is likely to be from 5-6% and at “full employment” Complications: Can be below natural rate for a while Implications: The natural rate of unemployment is a decent measure of the “normal” unemployment rate o Part C: GDP and Unemployment Potential GDP – Real GDP when all firms are operating at “capacity” Capacity can be exceeded for a year or two with extra overtime and reduced maintenance of capital Capacity does not equal maximum possible
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Potential GDP grows from year to year and in a recession, it is more than the real GDP Okun’s Law – The connection between real GDP (Y) and the unemployment rate (u) Idea: Since the labor force grows when population increases and since productivity rises, some economic growth (which creates jobs) is needed to keep the unemployment rate constant over time Formula: Percent change in Y = 3 – (2 x %change in unemployment) So, we need 3% GDP growth to keep the unemployment growth rate constant; faster growth is needed to cut the growth o Part D: Business Cycle The “Great Moderation” From 1982 to 2007 Most stable period of U.S. growth Longest expansion: 1991 – 2001 2 brief/mild recessions: 1991-1992 and 2001 Business Cycle – Combination of a recession and an expansion
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