: Provides information on total # of people who are employed and currently on a company’s payroll by surveying businesses. -Drawbacks: 1. Doesn’t provide info on the # of self-employed workers 2. Fails to count people employed by newly opened businesses 3. Doesn’t provide info on unemployed Unemployment Rate: % of the labor force that can’t find work, People who aren’t looking for a job are NOT considered part of the labor force Unemp. Rate= (# of unemployed/ Labor Force) X 100 *Labor Force : the sum of employed and unemployed workers ● Median Duration of Unemployment: Divides unemployed persons into 2 equal groups- one whose duration is above the median and the other whose duration is below. *Currently= 16 weeks, as of Jan. 2014 ● Underemployment Rate: refers to a situation that is insufficient in some way for the worker (ex: holding a part time job despite desiring full time work)
Underemp. Rate= (# of underemployed/ Labor Force) X 100 ● Labor Force Participation rate: % of the working age population that is in the labor force. Working Age= 16 years + Labor Force Part. Rate= (Labor Force/ Working Age Population) X 100 ● Types of Unemployment: 1. Frictional: Unemployed workers who’ve left one job and are looking for another job OR are out of a job due to seasonal factors 2. Structural: Workers who’ve lost their jobs because their skills don’t match what employers want. Usually are out of work longer than frictional workers because they must learn new skills 3. Cyclical: workers lose their jobs due to a recession *When the only types of unemployment are structural and frictional , the economy is said to be at full employment ( The Natural Rate of Unemployment ) ● Behaviors on Graph, since 1970: -Labor Force: steady increase -Employment: steady increase -Underemployment/ Unemployment: has flocculated. Generally corresponds to recession pds. -Labor Force Participation rate: increased a lot until 1990, where it began to decline ● Okun’s Law: the connection between real GDP (Y) and the unemployment rate (U) Δ%Y (Eco. Growth) = 3- 2 ΔU Idea: since the labor force grows with population increase, and since productivity rises, some economic growth is needed to keep the unemployment rate constant over time. *By Okun’s Law, we need 3% growth just to keep the unemployment rate constant ● The Business Cycle: a combination of a recession and an expansion
Recession: a significant decline in economic activity across an economy, lasting more than a few months -interrupts long term growth -unevenly spaced and of different severity -tends to reduce inflation The Great Recession (2007-2009): -growth still isn’t what it was before 2007 -lost 6.1% of payroll -was due to the bursting of the housing bubble, and market drops ● Causes of Recessions: Shock: a sudden external event that affects an economy. It throws off the usual growth path. 4 Kinds of Post War Shocks: 1. Energy Shock: a great decrease in the supply of energy resources (ex: gas crisis) 2. Monetary Policy: The Fed’s dual mandate: max employment and stable prices -plays a role in most post war recessions due to attempts to achieve stable prices -current Fed Funds Rate <0% *If inflation was too high, Feds would raise interest rates* 3. Financial Shock: Financial system seizes up, lending decrease (ex. Great Depression)
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