2 Identifying Unemployment EmployedPeople who workUnemployedNot employedWant to workLooking for a jobNot in the labor forceNot unemployed
3 Figure 1 The Breakdown of the Population in 2009 The Bureau of Labor Statistics divides the adult population into three categories: employed, unemployed, and not in the labor force.
4 Identifying Unemployment Labor forceTotal number of workers, employed and unemployed= Number of employed + Number of unemployedUnemployment ratePercentage of labor force that is unemployed
5 Identifying Unemployment Labor-force participation ratePercentage of the total adult population that is in the labor forceFraction of the population that has chosen to participate in the labor market
6 Table 1 The Labor-Market Experiences of Various Demographic Groups This table shows the unemployment rate and the labor-force participation rate of various groups in the U.S. population for 2009.
7 Identifying Unemployment Labor-market experiencesWomen ages 20 and olderLower rates of labor-force participation than menOnce in the labor forceMen and women - similar rates of unemployment
8 Identifying Unemployment Labor-market experiencesBlacks ages 20 and olderSimilar rates of labor-force participation as whitesMuch higher rates of unemploymentTeenagersLower rates of labor-force participationMuch higher rates of unemployment than older workers
9 Figure 2 Unemployment Rate since 1960 This graph uses annual data on the U.S. unemployment rate to show the percentage of the labor force without a job. The natural rate of unemployment is the normal level of unemployment around which the unemployment rate fluctuates.
10 Identifying Unemployment Natural rate of unemploymentNormal rate of unemploymentAround which the unemployment rate fluctuatesCyclical unemploymentDeviation of unemployment from its natural rate
11 Labor-force participation of men and women in the U.S. economy Women’s role in American societyChanged dramatically over the past centuryNew technologiesReduced the amount of time required to complete routine household tasksImproved birth controlReduced the number of children born to the typical familyChanging political and social attitudes
12 Figure 3 Labor-Force Participation Rates for Men and Women since 1950 This figure shows the percentage of adult men and women who are members of the labor force. Over the past several decades, women have entered the labor force, and men have left it.
13 Labor-force participation of men and women in the U.S. economy Data on labor-force participation1950 – difference between participation rates33% of women - working or looking for work87% of men - working or looking for work
14 Labor-force participation of men and women in the U.S. economy 2009 – difference between participation rates59% of women - working or looking for work72% of men - working or looking for work
15 Labor-force participation of men and women in the U.S. economy Fall in men’s labor-force participationYoung men - stay in school longerOlder men - retire earlier and live longerWith more women employedMore fathers now stay at home to raise their childrenCounted as being out of the labor forceFull-time students, retireesStay-at-home dads
16 Identifying Unemployment Official unemployment rateUsefulImperfect measure of joblessnessMovements into and out of the labor forceCommonMore than one-third of unemployedRecent entrants into the labor force
17 Identifying Unemployment Not all unemployment ends with the job seeker finding a jobHalf of all spells of unemploymentEnd when the unemployed leaves the labor forceSome of those who report being unemployedMay not be trying hard to find a jobWant to qualify for a government helpWorking but paid “under the table”
18 Identifying Unemployment Some of those who are out of labor forceMay want to workDiscouraged workersIndividuals who would like to workHave given up looking for a job
19 Table 2 Alternative Measures of Labor Underutilization The table shows various measures of joblessness for the U.S. economy. The data are for April 2010.
20 Identifying Unemployment How long are the unemployed without work?Most spells of unemployment are shortMost unemployment observed at any given time is long-termMost people who become unemployedWill soon find jobs
21 Identifying Unemployment How long are the unemployed without work?Most of the economy’s unemployment problemAttributable to the relatively few workers who are jobless for long periods of time
22 Identifying Unemployment Unemployment rateNever falls to zeroFluctuates around the natural rate of unemploymentFrictional unemploymentIt takes time for workers to search for the jobs that best suit their tastes and skillsExplain relatively short spells of unemployment
23 Identifying Unemployment Structural unemploymentResults because the number of jobs available in some labor marketsIs insufficient to provide a job for everyone who wants oneExplains longer spells of unemploymentResults when wages are set above the equilibriumMinimum-wage laws, unions, and efficiency wages
24 Job SearchJob searchProcess by which workers find appropriate jobs given their tastes and skillsWorkers differ in their tastes and skillsJobs differ in their attributesInformation about job candidates and job vacancies is disseminated slowly
25 Job Search Some frictional unemployment - inevitable Changes in demand for labor among different firmsChanges in composition of demand among industries or regions (sectoral shifts)The economy is always changingJobs created in some firmsJobs destroyed in other firms
26 Public Policy and Job Search Reduce time for unemployed to find jobsReduce natural rate of unemploymentGovernment programs – to facilitate job searchGovernment-run employment agenciesPublic training programs
27 Public Policy and Job Search Unemployment insuranceGovernment programPartially protects workers’ incomesWhen they become unemployedIncreases frictional unemploymentWithout intending to do soQualify – only the unemployed who were laid off because their previous employers no longer needed their skills
28 Public Policy and Job Search Unemployment insurance50% of former wages for twenty-six weeksReduces the hardship of unemploymentIncreases the amount of unemploymentUnemployment benefits stop when a worker takes a new jobUnemployedDevote less effort to job searchMore likely to turn down unattractive job offersLess likely to seek guarantees of job security
29 Minimum-Wage Laws Structural unemployment Minimum-wage laws Number of jobs – insufficientMinimum-wage lawsCan cause unemploymentForces the wage to remain above the equilibrium levelHigher quantity of labor suppliedSmaller quantity of labor demandedSurplus of labor – unemployment
30 Surplus of labor = Unemployment Figure 4Unemployment from a Wage above the Equilibrium LevelWageLaborsupplySurplus of labor = UnemploymentLabordemandMinimum wageLDLSWELEQuantity of LaborIn this labor market, the wage at which supply and demand balance is WE. At this equilibrium wage, the quantity of labor supplied and the quantity of labor demanded both equal LE. By contrast, if the wage is forced to remain above the equilibrium level, perhaps because of a minimum-wage law, the quantity of labor supplied rises to LS, and the quantity of labor demanded falls to LD. The resulting surplus of labor, LS – LD, represents unemployment.
31 Minimum-Wage Laws Wages may be kept above equilibrium level UnionsEfficiency wagesIf the wage is kept above the equilibrium levelResult: unemployment
32 Unions & Collective Bargaining Worker associationBargains with employers overWages, benefits, and working conditions12% of U.S. workersType of cartel
33 Unions & Collective Bargaining Process by which unions and firms agree on the terms of employmentStrikeOrganized withdrawal of labor from a firm by a unionReduces production, sales, and profitUnion workersEarn 10-20% more
34 Unions & Collective Bargaining Union - raises the wage above the equilibrium levelHigher quantity of labor suppliedSmaller quantity of labor demandedUnemploymentBetter off: employed workers (insiders)Worse off: unemployed (outsiders)May stay unemployedTake jobs in firms that are not unionized
35 Unions & Collective Bargaining Union - raises the wage above equilibriumSupply of labor – increase in industries not unionizedLower wageWorkers in unionsReap the benefit of collective bargainingWorkers not in unionsBear some of the cost
36 Unions & Collective Bargaining Are unions good or bad for the economy?CriticsUnions - a type of cartelAllocation of laborInefficient - high union wages reduce employment in unionized firms below the efficient levelInequitable - some workers benefit at the expense of other workers
37 Unions & Collective Bargaining Are unions good or bad for the economy?AdvocatesUnions - necessary antidote to the market power of the firms that hire workersIn the absence of a union, firms pay lower wages and offer worse working conditionsUnions - help firms respond efficiently to workers’ concernsKeep a happy and productive workforce
38 Theory of Efficiency Wages Above-equilibrium wages paid by firms to increase worker productivityWorker healthWorker turnoverWorker qualityWorker effort
39 Theory of Efficiency Wages Worker healthBetter paid workersEat a more nutritious dietHealthier and more productiveWorker turnoverFirm - can reduce turnover among its workersBy paying them a high wage
40 Theory of Efficiency Wages Worker qualityFirm – pays a high wageAttracts a better pool of workersIncreases the quality of its workforceWorker effortHigh wages – make workers more eager to keep their jobsGive workers an incentive to put forward their best effort
41 Henry Ford and the very generous $5-a-day wage Henry Ford - founder of Ford Motor CompanyIntroduced modern techniques of productionBuilt cars on assembly linesUnskilled workers were taught to perform the same simple tasks over and over againOutput: Model T Ford
42 Henry Ford and the very generous $5-a-day wage 1914, Ford - the $5 workdayTwice the going wageLong lines of job seekersNumber of workers willing to work > number of workers Ford neededFord’s high-wage policy – efficiency wage
43 Henry Ford and the very generous $5-a-day wage Ford’s efficiency wageTurnover fellAbsenteeism fellProductivity roseWorkers – so much more efficientFord’s production costs were lower despite higher wagesProfitable for the firm
44 Henry Ford and the very generous $5-a-day wage Ford’s efficiency wageHigh worker effortClosely linked to Ford’s use of the assembly lineAssembly line - highly interdependent workers