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18 Cards in this Set
- Front
- Back
- 3rd side (hint)
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Unemployment Rate Formula |
Unemployment Rate (%) = Unemployed ÷ Unemployed + Employed × 100 = Unemployed ÷ labor force × 100 |
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Measuring Unemployment When is a person considered unemployed? |
A person is considered unemployed when... ●they are 16 years of age or older ●are not institutionalized ●are not in the military ●are looking for work |
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Discouraged Workers |
They are not looking for work because they gave up. The unleashing employment rate does not account for/include discouraged workers. The unemployment rate is unreliable during long recessions because the percentage of discouraged workers goes up. |
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Job Quality |
The unemployment rate is also a bad indicator because it does not measure the quality of jobs, or in other words, how well someone is matched with their job.
Example: A taxi driver with a PhD in chemistry Economists also look at the following factors: ● labor force participation rate ● number of full time jobs ● average wages |
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Three types of unemployment |
● Frictional ● Structural ● Cyclical |
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Frictional Unemployment |
Short-term unemployment caused by difficulties of matching employee to employer.
○ scarcity of information creates frictional unemployment • the Internet probably reduced frictional unemployment
Frictional unemployment doesn't generally last long |
Unemployed workers would have to accept the first job they're offered in order to reduce frictional unemployment. Not necessarily a bad thing. |
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Structural Unemployment |
Petsistent, long-term unemployment caused by long lasting shocks or permanent changes in the economy. Causes: □ Large shocks that take a long time for the economy to restructure ▪ Oil shocks; alternatives take time to create ▪ New information technologies ▪ Globalization (decline of manufacturing > rise of service economy) Unemployment can be chronic/trap like. The longer a worker is out if work, the more their skills decline. Employers are wary of hiring those who have been unemployed for a while. |
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International Unemployment Rates |
● The US has a lower unemployment rate than other countries because we don't have as much unemployment benefits. ● The benefit replacement rate is much higher in Europe. ● These benefits also last longer in Europe. ● These benefits decrease the incentive to work.
The stronger the unions are and the higher the minimum wage is above the market wage, the higher the unemployment rate will be. |
▪ Unions prevent competition and make it harder to get a job. ▪ Minimum wage prevents the poor from finding employment because they may not be able to produce as much as the minimum wage would cover for production. If they don't produce $15 worth of stuff, and can only produce $10 worth of stuff, the business is essentially giving $5 worth of charity due to minimum wage. Therefore, they only hire those capable of producing more at a faster rate. |
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Employment at-will doctrine |
● An employee may quit for any reason ● An employer may fire for any reason ▪ This excludes race, religion, sex, sexual orientation, national origin, age, or handicap status. It is the most basic US unemployment law |
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Employment Protection Laws |
Some places like Portugal forbid at-will hiring and firing This results in greater job security and a greater cost in hiring/firing workers. The greater cost makes it very difficult for new workers and the unemployed to find jobs. Marriage analogy: Imagine if every date required marriage. It'd be very hard to find a date because that's such a big commitment to make knowing so little about the other person. It's a big risk. |
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Rigidity of Employment Index |
Summarizes hiring and firing costs. ▪ The higher the index, the greater the cost ▪ This has a great effect on long-term unemployment. |
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Impact of European Labor Regulations |
▪ create valuable insurance for workers with a full-time job ▪ make labor markets less flexible and dynamic ▪ increase the duration of unemployment ▪ increase unemployment rates among young, minority or otherwise "riskier" workers |
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Labor Regulation Efforts to Reduce Structural Unemployment in Europe |
▪ reducing unemployment benefits ▪ adopting active labor market policies ○ training subsidies for employers ○ proof they are actively seeking work ▪ allowing exceptions to collective bargaining agreements ○ insiders don't want to give up their benefits |
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Cyclical Unemployment |
Short-term unemployment that goes up in recessions Lower growth correlates with higher unemployment for two reasons: -when GDP falls, forms lay off workers -idle labor and capital > economic growth isn't maximized > this decreases the economy's ability to create more jobs because of this stall |
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Non Keynesians |
"Cyclical unemployment is caused by real shocks that require a reallocation of resources." They essentially believe it's just another form of frictional and structural unemployment. |
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Keynesians |
"Caused by deficiencies in aggregate demand." A mismatch between the aggregate level of wages and the level of prices. |
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Natural Unemployment Rate |
Structural + frictional unemployment |
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Labor Force Participation Differences in Incentives |
Taxes discourage work and benefits encourage non-work. Many countries penalize workers who work past the normal retirement age. Female participation in the labor force increased from 35% to 75% between 1948 and 2008 due to cultural factors, the rise of feminism, growing acceptance of equality, move from manufacturing to service economy and birth control. |
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