How To Understand The Unemployment Rate

Transcription

1 13.1 Unemployment Objectives Distinguish among four types of unemployment. Discuss the unemployment rate, and describe how it differs over time and across groups. Explain who is eligible for unemployment benefits in the United States.

2 13.1 Unemployment Key Terms full employment underemployment labor force unemployment rate labor force participation rate unemployment benefits

3 3 Types of Unemployment Frictional unemployment Structural unemployment Seasonal unemployment Cyclical unemployment Full unemployment

4 4 Frictional Unemployment The time required to bring together labor suppliers and labor demanders creates frictional unemployment. Frictional unemployment does not usually last long and results in a better match-up between workers and jobs.

5 5 Structural Unemployment Structural unemployment results when job seekers do not have the skills demanded. The unemployed may need to retrain to develop required skills.

6 6 Seasonal Unemployment Unemployment caused by seasonal changes in labor demand during the year is called seasonal unemployment. Workers in seasonal jobs know they will probably be unemployed in the off-season.

7 7 Cyclical Unemployment Cyclical unemployment is the increase in unemployment caused by the recession phase of the business cycle. Cyclical unemployment increases during recessions and decreases during expansions.

8 8 Full Unemployment Full unemployment occurs when there is no cyclical unemployment; relatively low unemployment. Even when the economy is at full employment, there will be some frictional, structural, and seasonal unemployment.

9 9 Problems with Official Unemployment Estimates Ignores discouraged workers Ignores underemployment

10 10 The Cost and Measure of Unemployment Unemployment rate Labor force participation rate Changes in unemployment rate Unemployment for various groups

11 11 Unemployment Rate The labor force consists of those in the adult population who are either working or looking for work. The unemployment rate equals the number of people without jobs who are looking for work divided by the number in the labor force. Unemployment rate = Number unemployed Number in the labor force

12 12 Labor Force Participation Rate The labor force participation rate equals the number in the labor force divided by the adult population.

13 13 Composition of Adult Population (in millions), July 2006 Figure 13.1

14 14 Changes in the Unemployment Rate The unemployment rate increases during recessions. The unemployment rate falls during expansions.

15 15 U.S. Unemployment Rate Since 1900 Figure 13.2

16 16 Unemployment for Various Groups Unemployment rates are higher among blacks than among whites. Unemployment rates are higher among teenagers than among those aged 20 and older.

17 17 Unemployment Compensation Social Security Act of 1935 provides unemployment insurance financed by a tax on employers. Unemployment benefits cash transfers to unemployed workers who actively seek work and who meet other qualifications.

18 18 Unemployment Benefits and Work Incentives Unemployment benefits May reduce the incentive to find work Allow for a more careful job search Allow the unemployed to continue to spend

19 13.2 Inflation Objectives Describe the types of inflation, and identify two sources of inflation. Identify the problems that unexpected inflation creates.

20 13.2 Inflation Key Terms inflation demand-pull inflation cost-push inflation nominal interest rate real interest rate

21 13.2 Inflation SLIDE 3 Inflation Basics Inflation is an increase in the economy s general price level.

22 13.2 Inflation SLIDE 4 Types of Inflation Hyperinflation extremely high inflation Disinflation a reduction in the rate of inflation Deflation a decrease in the general price level

23 13.2 Inflation SLIDE 5 Two Sources of Inflation Demand-pull inflation is inflation resulting from increases in aggregate demand. Cost-push inflation is inflation stemming from decreases in aggregate supply.

24 13.2 Inflation SLIDE 6 Inflation Caused by Shifts of the Aggregate Demand and Aggregate Supply Curves (a) Demand-pull inflation: inflation caused by an increase of aggregate demand (b) Cost-push inflation: inflation caused by a decrease of aggregate supply Figure 13.4

25 13.2 Inflation SLIDE 7 Consumer Price Index Since 1913 Despite fluctuations, the price level, as measured by the consumer price index, was lower in 1940 than in Since 1940, the price level has risen almost every year. Figure 13.5

26 13.2 Inflation SLIDE 8 Impact of Inflation Inflation reduces the value of the dollar and takes away confidence in the value of the dollar over the long term.

27 13.2 Inflation SLIDE 9 Expected Versus Unexpected Inflation Unexpected inflation creates more problems for the economy than does expected inflation. To the extent that inflation is higher or lower than expected, it arbitrarily creates economic winners and losers.

28 13.2 Inflation SLIDE 10 The Transaction Costs of Unexpected Inflation Reduced productivity Increased transaction costs of market exchange

29 13.2 Inflation SLIDE 11 Inflation and Interest Rates Nominal interest rate the interest rate expressed in current dollars as a percentage of the amount loaned; the interest rate on the loan agreement. Real interest rate the interest rate expressed in dollars of constant purchasing power as a percentage of the amount loaned; the nominal interest rate minus the inflation rate. Real interest rate = Nominal interest rate Inflation rate