3 Unemployment Economists characterize unemployment in four categories FrictionalSeasonalStructuralCyclical
4 Frictional Unemployment Unemployment that occurs when people take time to find a jobSwitching jobsJust finished schoolLeft labor force and trying to return
5 Seasonal Unemployment Unemployment that occurs due to seasonsGrowing seasonsConstructionVacation or resort industries
6 Structural Unemployment Workers skills do not match the jobs available5 causes of structural unemploymentDevelopment of new technologyDiscovery of new resourcesChanges in consumer demandGlobalizationLack of education
7 Cyclical Unemployment Unemployment that changes with business cyclesPeople lose jobs with decrease in production
8 Measuring EmploymentUnemployment is an important indicator in the economyBLS (Bureau of Labor Statistics) polls the population and reports on unemploymentThis computes the unemployment rateRepresents the % of people unemployed
9 Determining Unemployment Rate Divides the total number unemployed by the labor forceMonthly rates are seasonally adjusted
10 Full EmploymentAlthough it seems desirable, full employment is not a characteristic of a strong economyFull employment will lead to some inefficiencyA strong economy exhibits an unemployment rate of 4-6 percentEconomies will always experience cyclical unemployment
11 Underemployment and Discouraged Workers In various cases, people may have a job but be overqualified for that position. This is underemployment.Discouraged Workers are those who have stopped looking for a jobThey do not appear in the unemployment rate
12 Unemployment that is too low?? Very low unemployment can lead:to unneeded positionsHigh competition by companies to find workersHigher wagesHigher prices (inflation)
13 Review1. Unemployment that occurs when workers’ skills do not match the jobs that are available is known as(a) frictional unemployment.(b) structural unemployment.(c) seasonal unemployment.(d) cyclical unemployment.2. The unemployment rate(a) is the percentage of the labor force that is unemployed.(b) is the number of people who are unemployed.(c) includes only discouraged workers.(d) is the percentage of the labor force that is underemployed.
15 InflationInflation is the term used to describe a general increase in pricesIt does not always mean that things have become more expensive. If wages increase with inflation, the change in prices is not felt.Purchasing Power is the power to purchase goods and services. If prices increases and wages do not, one loses purchasing power
16 Price IndexesPrice indexes are measurements that show the average price of a collection of goodsConsumer Price Index (CPI)best known price indexCalculated monthly and focuses on consumer goodsUses the market basketThe market basket is a collection of representative goods
17 Market Basket Updated every 10 years Include products in categories (pg 339)Food and drinkHousingApparelTransportationMedical careEntertainmentEducationOther services
18 Inflation RateInflation rate measures the percent in price changes over timeCalculation:CPI for year A minus CPI for year B / CPI for year B x 100
19 Types of InflationCreeping inflation...low inflation rate (1-3% per year) for a long period of time.not harmful to the economyChronic Inflation...steady accelerating inflation over a period of timeHard on an economy (things are unpredictable)Hyper Inflation...out of control inflation ( %)Extremely hard on the economy
20 Causes of Inflation Many factors can cause a rise in prices. Quantity Theory...too much money causes inflationDemand-Pull Theory...there is higher demand and prices riseCost-Push Theory...cost of production goes up so prices rise (wage increases caused by low unemployment, raw materials)
21 Wage-Price SpiralOccurs when higher wages cause higher prices and higher prices cause higher wages
22 Effects of InflationHigh inflation can cause many problems for an economy. With high inflation, it is hard to predict the futurePurchasing Power...the dollar loses value and one cannot buy as much
23 Effects of InflationIncome...if prices increase but wages do not, one’s disposable income decreases (troublesome for those on a fixed income)Interest Rates...if inflation increase faster than interest rates, my savings and investments may lose money
24 Recent Trends Prices have steadily increased for the past thirty years There was a short period of deflation (falling prices) in the late 90’s
25 Review1. Inflation is(a) the process by which rising wages cause higher prices.(b) the price increase of a typical group of goods.(c) a general increase in prices.(d) the ability to purchase goods and services.2. Chronic inflation occurs when the inflation rate(a) drops to zero.(b) remains low for a long time.(c) grows out of control.(d) rises steadily over an extended period.
27 PovertyPoverty Threshold...income level that is too low to support a familyPoverty rate...percentage of households below the poverty line
28 Causes of Poverty Lack of Education Location Racial and Gender DiscriminationEconomic Shifts...layoffs etc...last hired, first firedFamily Structure...single parent families etc...
29 Income distributionMedian income for US...$43,318, yet millions live in povertyThis is due to uneven income distribution20% of US households make 50% of the income (80% of the wealth)Lorenz Curve represents the distribution of income in US economy
30 Antipoverty PoliciesEnterprise zones...companies are encouraged to locate in areas and received incentives to do soEmployment Assistance...programs to place workersMinimum wage
31 Antipoverty Policies Welfare Reform Personal Responsibility and Work Opportunity Reconciliation ActAimed at reducing reliance on welfare assistanceSet a 5 year limit on benefitsSent responsibility to the statesBlock grants...money to the states for distribution rather than directly to the peopleWorkfare...exchange of work for assistance
32 Review1. An income level below which income is insufficient to support a family or household is known as the(a) income gap.(b) poverty rate.(c) poverty threshold.(d) income inequality.2. The Personal Responsibility and Work Opportunity Act of 1996(a) provides lump sums of money to poor families.(b) provides federal payments to poor families to supplement state payments.(c) set a 5-year limit on receipt of benefits.(d) provides direct cash payments to poor families.