Previously: Measuring Output

Transcription

1 Labor Markets

2 Previously: Measuring Output Gross Domestic Product (GDP) The market value of all final goods and services produced in a specific period of time GDP = C + I + G + X - IM To find real GDP, we must adjust nominal GDP for inflation Business cycle Short-run fluctuations in economic activity that can cause output to be above or below the long-run trend

3 Next: Measuring Labor Markets Two main indicators of labor markets: 1. Unemployment Rate. 2. Labor Force Participation Rate. Questions 1. What factors determine the unemployment rate? 2. Why don t we ever have zero unemployment rate? 3. What factors determine the LFPR?

4 Unemployment in the News

5 U.S. Unemployment Rate ( : 6.1%)

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8 Labor Market Definitions Civilian noninstitutional population - Included are persons 16 years of age and older residing in the 50 States and the District of Columbia who are not inmates of institutions (for example, penal and mental facilities, homes for the aged), and who are not on active duty in the Armed Forces.

9 Labor Market Definitions Unemployed persons - Persons aged 16 years and older who had no employment during the reference week, were available for work, except for temporary illness, and had made specific efforts to find employment sometime during the 4-week period ending with the reference week. Persons who were waiting to be recalled to a job from which they had been laid off need not have been looking for work to be classified as unemployed.

10 Labor Market Definitions Employed persons - Persons 16 years and over in the civilian noninstitutional population who, during the reference week, (a) did any work at all (at least 1 hour) as paid employees; worked in their own business, profession, or on their own farm, or worked 15 hours or more as unpaid workers in an enterprise operated by a member of the family; and (b) all those who were not working but who had jobs or businesses from which they were temporarily absent because of vacation, illness, etc.

11 Labor Market Definitions Labor force - The labor force includes all persons classified as employed or unemployed. Not in the labor force - Includes persons aged 16 years and older in the civilian noninstitutional population who are neither employed nor unemployed.

12 Labor Market Definitions Labor force People who are employed or actively seeking work Who is not in the labor force? Jobless people not actively seeking employment (no efforts made in four weeks) Retirees Full-time Students Institutionalized

13 Labor Market Definitions Unemp. rate LFP rate # Unemployed #Labor Force # Labor Force #Civilian Noninst. Pop. Unemployment rate measures how hard it is to find work, for those who want to work. LFP rate measures the fraction of adults who want to work.

14 Labor Market Definitions Total Population Civilian Noninstitutional Population Labor Force Employed Unemployed Not in the Labor Force 314 million 243 million 154 million 142 million 12 million 89 million

15 Three Types of Unemployment Is it practical to have zero unemployment? Generally, unemployment is a drain on society and very difficult for certain individual households However, as our economy changes and progresses, certain jobs are destroyed. Three types of unemployment Structural Frictional Cyclical Natural unemployment

16 Structural Unemployment Structural unemployment Unemployment caused by changes in the industrial makeup (structure) of the economy Joseph Schumpeter: creative destruction New industries are created, and old ones are destroyed Examples: Borders (bookstore) bankrupt in Job losses in the book industry. Why? U.S. steel industry: 1980: 500,000 laborers 2010: 150,000 laborers More automated equipment, safer and more efficient

17 Structural Unemployment Changes in American economy over time Agricultural (working in fields) Manufacturing (working in factories) Service (working in offices, online) Today: United States = service economy

18 Structural Unemployment What can structurally unemployed people do? Undesirable to save obsolete or inefficient jobs Workers must retrain, reeducate, relocate, or change expectations about work and pay Government can help with training programs or relocation subsidies

19 Economics in Bronze Age Orientation Mitchell and Webb This clip illustrates two cavemen facing possible structural unemployment during the movement from the Stone Age to the Bronze Age

20 Growing and Changing Economies

21 Luddites Luddites Nineteenth-century English textile workers Destroyed automated looms that could be operated cheaply to produce clothing Goal Trying to protect themselves from structural unemployment Question to think about The industrial revolution may have left many people structurally unemployed. What are the trade-offs of technological progress and structural unemployment?

22 Frictional Unemployment Frictional unemployment Unemployment caused by time delays in searching and matching available jobs and workers People don t instantly take a new job, and they might not want to take the first available job Firms don t always hire the first applicant Example: Recent college grads Spouse of a person who moves for a new job

23 Frictional Unemployment Length of frictional unemployment is affected by demographic structure: younger people spend more time searching for jobs.

24 Frictional Unemployment: Age Structure

25 Frictional Unemployment: Age Structure

26 Frictional Unemployment Length of frictional unemployment Can also be affected by government regulations that make it difficult to hire or fire For instance, in France most workers hold their jobs until retirement and expect as much. If an employer wishes to fire a worker of more than two years seniority, he must give three months notice, pay a fine to the government, and offer the worker up to three years severance pay.

27 Hiring and Firing Regulations Increase Unemployment

28 Cyclical Unemployment Cyclical unemployment Caused by economic downturns The worst kind of unemployment Occurs for an unknown length of time 2008: 18 months, 10% unemployed Natural rate of unemployment (u*) Typical rate of unemployment in a healthy economy Actual employment rate denoted by (u) Full employment output (Y*) Output by an economy with no cyclical unemployment Actual output denoted by (Y)

29 Three Types of Unemployment Unemployment Rate during Recession Cyclical Bad! Unemployment Rate during Normal Macroeconomic Conditions Always occurring, denoted as u* Structural Structural Frictional Frictional Natural Unemployment

30 Unemployment is Counter- Cyclical Healthy Economy Recession Super-Normal Expansion (Temporary) u = u* u > u* u < u* Y = Y* Y < Y* Y > Y* Cyclical unemployment is zero Cyclical unemployment is positive Cyclical unemployment is negative

31 Historical U.S. Unemployment Rates

32 Limitations of the Official Unemployment Rate Discouraged workers People who want a job but get discouraged and give up looking for work Are not included in the labor force and not considered unemployed Underemployed workers Part-time workers who want full-time jobs Workers who are very overqualified at their job Considered employed

33 Unemployment Game Show The video features four jobless workers Which of them are considered unemployed? The video illustrates the shortcomings of how we measure unemployment

34 Historical U.S. Unemployment Rates

35 Limitations of the Official Unemployment Rate Unemployment timeline Unemployment rate lags behind economic activity Recovery happens, people re-enter the labor force, and the unemployment rate can actually increase! Short-run unemployment may not be a big concern, but long-term unemployment is a big concern

36 Lagging versus Leading Indicators A leading indicator Helps us predict what s coming, and they usually change before the economy as a whole does Example: Average weekly hours for manufacturing Example: Building permits A lagging indicator Usually changes after the economy as a whole changes, so it doesn t have much predictive power. Example: Average duration of unemployment Example: Change in the price index

37 Duration of Unemployment, End of 2007, 2011

38 Animated Unemployment Geography of Jobs An interactive map which shows recession rates changing across America during the Great Recession which began in December 2007

39 Other Labor Market Indicators LFP rate Labor force participation rate The portion of the population that is in the labor force Tells us the fraction of people who are working or looking for work Applications # Labor Force #Civilian Noninst. Pop. Baby boomers retiring Social Security and Medicare? Gender participation over time?

40 Labor Force Participation Rate

41 Other Labor Market Indicators People tend to leave the labor force in bad times and re-enter in good times Causes unemployment rate to lag economic conditions Secondary indicators include nonfarm employment Total employment figures Reported each month Helps evaluate cyclical effects

42 Trends in Labor Force Participation

43 Labor Market Data Race and Gender

44 Two Similar Recessions: Real GDP Growth

45 Two Similar Recessions: Unemployment Rate

46 Case Study: How Bad was the Recession of 2008? 2008 Great Recession 1982 Recession 1929 Great Depression Length 18 months 16 months 10 to 11 years Changes in GDP -6.8% growth in worst quarter, total loss of 2.95% -6.4% growth in worst quarter, total loss of 2.95% -30% over a three-year period Unemployment 10.1% 10.8% 25% at one point, over 15% for the entire decade

47 Conclusion Unemployment rates Monitored as indicators of macroeconomic health Help us gauge labor market conditions Indicator can also be misleading and incomplete, since it lags behind economic activity and doesn t account for underemployment and discouraged workers Different types of unemployment, some worse than others Government policy can also influence unemployment rates and seems to have played a big part in propping up rates in the aftermath of the 2008 recession

48 Summary Frictional and structural unemployment explain why unemployment is naturally greater than zero Cyclical unemployment explains changes in the rate across the business cycle The unemployment rate is the percentage of the labor force that would like to work who are unemployed

49 Summary The official unemployment rate understates the overall level of underemployment in society since it does not account for discouraged workers nor does it tell us anything about the duration of unemployment The labor force participation rate and nonfarm employment changes are additional helpful labor market indicators. The 2008 recession in the United States is historically comparable to the 1982 recession

50 Practice What You Know Which of the following is an example of structural unemployment? A. Alfred the VCR repairman is unemployed because there are very few people that still own VCRs B. Bernie the construction worker is unemployed because no one is building houses right now C. Carl the restaurant chef is unemployed because he and his wife recently moved to a new city

51 Practice What You Know Which of the following is an example of frictional unemployment? A. Alfred the VCR repairman is unemployed because there are very few people that still own VCRs B. Bernie the construction worker is unemployed because no one is building houses right now C. Carl the restaurant chef is unemployed because he and his wife recently moved to a new city

52 Practice What You Know Who is considered unemployed? A. Jean, a college student who is currently not working B. Zoe, a recent college graduate who sent out job application, but has yet to hear back from the businesses C. Michael, a stay-at-home dad D. All of the above

53 Practice What You Know If a discouraged worker re-enters the labor force and begins searching for jobs but doesn t find one, the unemployment rate will: A. Go down because our economy is on the right track with more people wanting to work B. Stay the same because the number of people with jobs didn t change C. Stay the same because the worker isn t counted in the labor force until he finds a job again D. Increase because the percentage of labor force participants with jobs decreased

54 Practice What You Know What is a possible unintended consequence of unemployment insurance? A. It hurts the unemployed by giving them benefits B. It may increase the length of unemployment since it decreases the cost of being unemployed C. It angers hard-working people D. It lasts as long as you want it to, so you can get paid and never have to work