U-6 underemployment rate ○ (Unemployed + marginally attached + part-time want full) / Labor force ■ Divided by labor force
■ This is typically higher than the unemployment rate calculated with U-3 ● Picking up a lot of marginally workers ● Question: In your view, which of the following shows the most pain in the labor market during and after the Great Recession? ○ Employment (“payrolls” in our charts) ○ Unemployment rate ○ U-6 March 23 ● Question: In your view, which of the following shows the most pain in the labor market during and after the great recession? ○ A. Employment (“payrolls” in our charts) - U3 ○ B. Unemployment ○ C. U6 unemployment rates - broadest term of unemployment ○ D.% of Unemployed who are unemployed > 27 weeks ○ E.Labor force participation rate ● Question: For workers, how does this economy compare to “Normal times?” ○ Answer: 4.7% unempo. Rate is near natural rate :) ■ Lower participation rate (more retiring is fine, but ⅛ people in prime working times are out of jobs) :( ■ Those who are unemployed it is usually for a long time, better then it was but not good :( ■ Many part-time want full-time jobs :( ■ Real wages have been growing slowly ( :( because not that big of an increase or change) Part B- Connection between real GDP and unemployment ● Question: To reduce the unemployment rate and increase employment, what needs to happen to real GDP? ○ It is just more production → more hiring → less unemployment? ■ Nope. Never that simple. ● Potential GDP ○ Is real GDP when all firms are operating at “capacity” ○ Factories and offices running normally - not half-staffed nor extra overtime ○ “Capacity ≄ maximum possible” ○ Capacity can be exceeded for a year or two with extra overtime ■ Question: Potential GDP ___ from year to year & in a recession it is ___ than real GDP. ● Is constant, more than ● Is constant, less than ● Grow, less than ● Grows, more than ■ Output gap= real GDP - potential GDP ● As of 2016 IV: $156 billion … 0.9% of real GDP ● 6.7% gap in 2009 III
■ When real GDP= potential GDP, also at full employment and the natural rate of employment ● Question: Are there times of growth with rising unemployment? ○ A. No ○ B. Not sure ○ C. Yes ■ Leads to “Okun’s Law” ● Okun’s Law ○ The connection between real GDP (y) and the unemployment rate (u) ○ Idea: ■ (i) The labor force grows as the population grows ■ (ii) Productivity (Y/L) experiences increases over the years ■ So some economic growth (which creates jobs) is needed to keep the unemployment rate constant over the years ○ Formula: ■ △%Y= 3-(2 △%u) (via stat. studies) ● Question: What rate of economic growth keeps the unemployment rate constant? ○ 3.0% ○ Unemployment rate constant is a 0% change in u so then you wipe out the second part of the problem, so that just leaves the 3% ○ ● Question: Say that economic growth for one year was 1% and it accelerated to 5% for the next year.
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