Worksheet 13.1: Classifying Unemployment

Transcription

1 Worksheet 13.1: Classifying Unemployment For each of the following scenarios, classify the worker as employed, unemployed, or out of the labor force. If the worker is unemployed, classify his or her type of unemployment. 1. Jamal has been working 3 hours a day after school at the local convenience store. 2. Freddy has been working on the weekends for his mom s restaurant. Rather than paying Freddy a wage, his mom has agreed to make his monthly car payment. 3. Samantha recently quit her job at the landscaping business and has been trying to get hired at Home Depot, but has not received a reply to her application. 4. Raquel was laid off at the Toyota plant because the weak economy has meant fewer people are buying new cars. Her supervisor has assured her that she will be rehired if the economy gets better. 5. Dr. Chan recently sold his medical practice and has retired to a house in the mountains. 6. Tina has decided to not get a job after school because she wants to improve her grades before graduation. 7. Luis has been searching for a full-time job in marketing, but has only been able to find a part-time job at the grocery store. 8. Margaret doesn t have a job, but has been looking for work since last July. Recently she decided to stop searching for a job until the economy improves. 9. Eric has worked in the tobacco fields since he was a little kid. Because fewer people are smoking, demand for tobacco has fallen, and Eric can no longer find work in this occupation. 10. When Dorothy had children, she decided to quit her job in advertising to stay home and raise them until they went to grade school.

2 Copyrighted Material - Do Not Post Answers Online Worksheet 13.1: Classifying Unemployment Answer Key For each of the following scenarios, classify the worker as employed, unemployed, or out of the labor force. If the worker is unemployed, classify his or her type of unemployment. 1. Jamal has been working 3 hours a day after school at the local convenience store. Employed 2. Freddy has been working on the weekends for his mom s restaurant. Rather than paying Freddy a wage, his mom has agreed to make his monthly car payment. Out of the Labor Force 3. Samantha recently quit her job at the landscaping business and has been trying to get hired at Home Depot, but has not received a reply to her application. Unemployed - Frictional 4. Raquel was laid off at the Toyota plant because the weak economy has meant fewer people are buying new cars. Her supervisor has assured her that she will be rehired if the economy gets better. Unemployed - Cyclical 5. Dr. Chan recently sold his medical practice and has retired to a house in the mountains. Out of the Labor Force 6. Tina has decided to not get a job after school because she wants to improve her grades before graduation. Out of the Labor Force 7. Luis has been searching for a full-time job in marketing, but has only been able to find a part-time job at the grocery store. Employed 8. Margaret doesn t have a job, but has been looking for work since last July. Recently she decided to stop searching for a job until the economy improves. Out of the Labor Force Discouraged Worker 9. Eric has worked in the tobacco fields since he was a little kid. Because fewer people are smoking, demand for tobacco has fallen, and Eric can no longer find work in this occupation. Unemployed - Structural 10. When Dorothy had children, she decided to quit her job in advertising to stay home and raise them until they went to grade school. Out of the Labor Force

3 Worksheet 13.2: Structural or Cyclical After watching NPR s Structural or Cyclical? The Type of Unemployment Matters podcast from 2013 found at answer the following questions. 1. Why kind of unemployment does Davidson suggest is better and why? 2. What kind of unemployment does Davidson suggest is bad and why? 3. According to Davidson, how might the government respond to the cyclical unemployment problem? 4. Do you agree with Davidson s comments about unemployment? Explain.

4 Copyrighted Material - Do Not Post Answers Online Worksheet 13.2: Structural or Cyclical Answer Key After watching NPR s Structural or Cyclical? The Type of Unemployment Matters podcast from 2013 found at answer the following questions. 1. Why kind of unemployment does Davidson suggest is better and why? Cyclical unemployment is considered to be better because as the economy strengthens, it will disappear. 2. What kind of unemployment does Davidson suggest is bad and why? Structural unemployment is worse for the workers affected and the economy because millions of Americans are likely to be unemployed or underemployed due to lack of job skills. 3. According to Davidson, how might the government respond to the cyclical unemployment problem? Congress can enact some kind of stimulus or infrastructure spending to get people back to work. 4. Do you agree with Davidson s comments about unemployment? Explain. Answers will vary.

5 Worksheet 13.3: Unemployment and Natural Rate of Unemployment After watching Jacob Clifford s NRU video at answer the following questions. 1. What are the definitions of the three types of unemployment? 2. What two types of unemployment will always be part of the economy? Why? 3. What is the natural rate of unemployment? 4. What is another name for the natural rate of unemployment?

6 Copyrighted Material - Do Not Post Answers Online Worksheet 13.3: Unemployment and Natural Rate of Unemployment Answer Key After watching Jacob Clifford s NRU video at answer the following questions. 1. What are the definitions of the three types of unemployment? a. Frictional an individual is temporarily unemployed or between jobs. The individual is qualified and has transferable skills but is not working because the individual is a new entrant to the labor market or has recently quit to find another job. b. Structural changes in the structure of the labor force make some skills obsolete. Geographic relocation of jobs may occur. The individual does not have transferable skills and/or the jobs may never come back. c. Cyclical unemployment that results from changes in the economy or the business cycle. 2. What two types of unemployment will always be part of the economy? Why? Frictional and structural unemployment are always present in the economy. Frictional unemployment includes those just joining or coming back into the labor force. It is part of the natural cycle of the market. Structural unemployment occurs when workers lack the skills needed for the changing marketplace. They must be retrained or go back to school and get a new set of skills. This is also the natural cycle of the markets as innovation and technology change it. 3. What is the natural rate of unemployment? Frictional and structural unemployment make up the natural rate of unemployment. Cyclical unemployment disappears. So the natural rate of unemployment will only include frictional and structural. 4. What is another name for the natural rate of unemployment? At the natural rate of unemployment (NRU), the economy is said to be at full employment. So NRU is at Full Employment.

7 Exit Slip: Module Last week Stephanie quit her job as a copywriter at an advertising agency. She has spent the last few days browsing the help-wanted ads, but hasn't found anything that matches her skills. Stephanie is best classified as: A. structurally unemployed. B. frictionally unemployed. C. a discouraged worker. D. out of the labor force. E. cyclically unemployed. 2. Which pair of policies is likely to have the effect of reducing the natural rate of unemployment? A. Job training and employment subsidies. B. High minimum wages and generous unemployment benefits. C. Job training and higher minimum wages. D. Employment subsidies and policies designed to strengthen labor unions. E. High minimum wages and policies designed to strengthen labor unions. 3. If the actual unemployment rate is 7% and the cyclical unemployment rate is 2%, then the natural rate of unemployment is: A. 2%. B. 5%. C. 7%. D. 9%. E. 3.5%.

8 Copyrighted Material - Do Not Post Answers Online Exit Slip: Module 13 Answer Key 1. Last week Stephanie quit her job as a copywriter at an advertising agency. She has spent the last few days browsing the help-wanted ads, but hasn't found anything that matches her skills. Stephanie is best classified as: A. structurally unemployed. B. frictionally unemployed. C. a discouraged worker. D. out of the labor force. E. cyclically unemployed. (B) 2. Which pair of policies is likely to have the effect of reducing the natural rate of unemployment? A. Job training and employment subsidies. B. High minimum wages and generous unemployment benefits. C. Job training and higher minimum wages. D. Employment subsidies and policies designed to strengthen labor unions. E. High minimum wages and policies designed to strengthen labor unions. (A) 3. If the actual unemployment rate is 7% and the cyclical unemployment rate is 2%, then the natural rate of unemployment is: A. 2%. B. 5%. C. 7%. D. 9%. E. 3.5% (B)

9 MODULE 13: THE CAUSES AND CATEGORIES OF UNEMPLOYMENT In-Class Presentation of Module and Sample Lecture Suggested time: This module can be covered in one hour-long class. I. The Natural Rate of Unemployment A. Job Creation and Job Destruction B. Frictional Unemployment C. Structural Unemployment 1. Minimum Wages 2. Unions 3. Efficiency Wages 4. Side Effects of Public Policy D. The Natural Rate of Unemployment E. Changes in the Natural Rate of Unemployment 1. Changes in Labor Force Characteristics 2. Changes in Labor Market Institutions 3. Changes in Government Policies I. The Natural Rate of Unemployment There is still a level of unemployment even when jobs are plentiful. Even in the best of times, jobs are constantly being created and destroyed. This will make more sense if we know a little more about the various types of unemployment. A. Job Creation and destruction The job market is constantly fluctuating. Example: point out to the students a handful of local businesses that might have opened in recent months (a new restaurant) or maybe closed. This is happening all over the country. There are different types of unemployment that describes how jobs are constantly being created and destroyed. B. Frictional unemployment Consists of those searching for jobs or waiting to take jobs soon. Example: A college student graduates but doesn t start a job for a month. Example: A truck driver quits her job for one company because she thinks there is a better driving route with a competitor. Frictional unemployment is regarded as somewhat desirable, because it indicates that there is mobility as people change or seek jobs. If workers are seeking new jobs that better fit their skills or lifestyle, this increases productivity and efficiency in the labor markets. C. Structural unemployment This occurs when there are more people seeking jobs in a labor market than there are jobs available at the current wage rate. This may be due to changes in the structural demand for labor; e.g., when certain skills become obsolete or geographic distribution of jobs changes.. Module 13 Page 1

10 Examples of structural unemployment: Bottle-making machines replaced glass blowers. Airline mergers displaced many airline workers in 1980s. Foreign competition has led to downsizing in U.S. industry and loss of jobs. Military cutbacks led to displacement of workers in military-related industries. Note: You can use the example below or describe a labor market for a good example of a job that has experienced local structural unemployment. Example: Loggers and sawmill workers have lost jobs when environmental restrictions are placed on old-growth forests. Note: The instructor may need to explain that the supply of labor (SL) comes from workers who wish to supply more labor at higher wages. The demand for labor (DL) comes from employers who wish to employ fewer workers at higher wages. W 80 was the wage in the 1980s. The demand for timber workers was strong and was the economic engine of many cities and towns in Western states. Employment was L 80. As this renewable resource was overexploited and species became endangered, more forests were protected and the demand for timber workers permanently decreased. At the old wage W 80, the quantity of timber workers seeking to supply their labor (L 80 ) exceeds the quantity of labor demanded (L d ). This difference is structural unemployment. Once the labor market adjusts to a new lower wage and lower employment, the structural unemployment has been eliminated, but it may be difficult for these former timber workers to find a similar source of earnings. What if the wage does not adjust downward? What could cause this to happen?. Module 13 Page 2

11 1. Minimum wages The minimum wage is a price floor, so in some industries (i.e. fast food) there may always be structural unemployment because there may always be a surplus of labor. 2. Labor unions A labor union will negotiate with employers on behalf of the workers. The goal is usually to raise the wages above market equilibrium. As a result, there may be some structural unemployment. The members and leadership of the unions usually are willing to make this tradeoff of higher wages for lower employment. 3. Efficiency Wages Firms may choose to pay efficiency wages wages that employers set above the equilibrium wage rate as an incentive for their workers to deliver better performance. If the efficiency wage creates a surplus of workers, it has created structural unemployment. 4. Side Effects of Public Policy Most economically advanced countries provide benefits to laid off workers as a way to tide them over until they find a new job. The drawback to this generosity is that it reduces the incentive to quickly find a new job, and by keeping more people searching for longer, the benefits increase structural and frictional unemployment. The alternative to unemployment benefits is to provide nothing and let workers, and their families, fend for themselves. Most nations are willing to support these families so that they are not financially ruined in the event of a recession. D. The Natural Rate of Unemployment Frictional unemployment is inevitable and many factors create some structural unemployment. So a certain amount of unemployment is normal, or natural and actual unemployment fluctuates around this normal level. Natural rate of unemployment: the normal unemployment rate around which the actual unemployment rate fluctuates. Natural unemployment = Frictional unemployment + Structural unemployment When the economy goes through the business cycle, jobs are created and destroyed, and this can add to, or subtract from, the natural rate. Cyclical unemployment: the deviation of the actual rate of unemployment from the natural rate, or it is the share of unemployment that arises from the business cycle. Actual unemployment = Natural unemployment + Cyclical unemployment But the natural rate can also rise and fall. E. Changes in the Natural Rate of Unemployment Congressional Budget Office, the independent agency that conducts budget and economic analyses for Congress, believes that the U.S. natural rate of unemployment was 5.3% in 1950, rose to 6.3% by the end of the 1970s, but has fallen to 4.8% today. 1. Changes in Labor Force Characteristics Older, more experienced, workers are more likely to be employed. As the U.S. workforce has gradually aged, this has contributed to a declining natural rate of unemployment.. Module 13 Page 3

12 2. Changes in Labor Market Institutions The declining role of unions in the U.S. labor market has weakened their ability to raise wages and some of that structural unemployment has been reduced. Better technology in job search (on-line services) has lessened the time a worker is in between jobs, lessening the frictional unemployment. 3. Changes in Government Policies The government can offer subsidies to employers to employ workers who are currently unemployed. Programs to retrain workers with obsolete skills can also lessen the natural rate of unemployment.. Module 13 Page 4