Markets add incentives and signals to add technology and capital Institutions Rule of Law Peace Commercial Law Limits on government power Rewards for innovation Property rights (real estate/land and intellectual property) Today, countries like Somalia and Russia lack rule of law Basically, institutions structure incentives in human exchange Ex. Rule of law, Norm of behavior Good Government: Beyond the Rule of Law Political stability Press freedom Little corruption Democracy Institutions and Rule of Law Haiti: Score of 19 and country 163/175 in rule of law Markets work best in economies with good institutions The reason growth wasn’t seen before 1750 or why some countries are poor is because there’s often not an interest in making laws/rules Lack of property rights, lack of rule of law, many wars/revolutions, poor public education and health, low rates of saving and investing If a government wants to intervene, they can aide in the problems listed above To be rich, a country needs a lot of technology/K/L. They increase by good institutions which in turn cause vibrant markets, high A and Y/L, and high GDP per person o Part F: Increasing Productivity & Impact on Employers Over the last 100 years, faming has become less common. Those laid off from farms (and their descendants) repair cars, work in airplanes, write software, lay brick, etc. Layoffs help increase growth and real incomes within an industry The benefits of globalization Foreign Direct Investment (FDI) – The purchase or building by a corporation of a facility in a foreign country Foreign Portfolio Investment – The purchase by an individual or a firm of stocks/bonds issued in another country
Globalization – The process of countries becoming more open to trade and investment o Part G: U.S. Growth over the next 30 years Headwinds/Negative Trends 1. 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
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