macroeconomics essay

gaz3

unemployment_slides_from_chapter_3_1.ppt

Home >Business & Finance homework help >Economics homework help >macroeconomics essay

3-*

Unemployment

3-*

Measuring Unemployment

Categories: employed, unemployed, not in the labor force

Labor Force = Employed + Unemployed

Unemployment Rate = Unemployed/Labor Force

Participation Rate = Labor Force/Adult Population

3-*

Employment Status of the U.S. Adult Population, July 2012

3-*

Changes in employment status in a typical month (July 2012)

3-*

Unemployment

How long are people unemployed?

Most unemployment spells are of short duration
Unemployment spell = period of time an individual is continuously unemployed
Duration = length of unemployment spell

Most unemployed people on a given date are experiencing unemployment spells of long duration

3-*

Unemployment

How long are people unemployed?
Numerical example:
Labor force = 100; on the first day of every month, two workers become unemployed for one month each; on the first day of every year, four workers become unemployed for one year each
Result: 28 spells of unemployment during a year; 24 short (one month), four long (one year); so most spells are short
At any date, unemployment = six; four have long spells (one year), two have short spells (one month); so most unemployed people on a given date have long spells

3-*

Unemployment

Unemployment Duration and the 2007-2009 Recession

Mean duration of unemployment rises in recessions

In 2007-2009 recession, the rise in duration was larger than ever before (next slide)

3-*

Mean duration of unemployment, 1960-2012

3-*

Unemployment

Why there are always unemployed people?

Frictional unemployment

Search activity of firms and workers due to heterogeneity

Matching process takes time

3-*

Structural Unemployment

Chronically unemployed: workers who are unemployed a large part of the time
Structural unemployment: the long-term and chronic unemployment that exists even when the economy is not in a recession
One cause: Lack of skills prevents some workers from finding long-term employment
Another cause: Reallocation of workers out of shrinking industries or depressed regions; matching takes a long time

3-*

Unemployment

The natural rate of unemployment ( )

natural rate of unemployment; when output and employment are at full-employment levels

= frictional + structural unemployment

Cyclical unemployment: difference between actual unemployment rate and natural rate of unemployment

3-*

Unemployment

In touch with data and research: labor market data
BLS employment report
Household survey: unemployment, employment
Establishment survey: jobs

3-*

Relating Output and Unemployment: Okun’s Law

Okun’s Law:
Relationship between output and cyclical unemployment

3-*

Relating Output and Unemployment: Okun’s Law

Why is the Okun’s Law coefficient 2, and not 1?
Other things happen when cyclical unemployment rises: Labor force falls, hours of work per worker decline, average productivity of labor declines
Result is 2% reduction in output associated with 1 percentage point increase in unemployment rate

3-*

Relating Output and Unemployment: Okun’s Law

Alternative formulation if average growth rate of full-employment output is 3%:

Y/Y = 3 – 2 u

3-*

Okun’s Law in the United States: 1951-2011

)

(