3 22 Unemployment, Inflation, and Long-Run Growth CHAPTER OUTLINE Measuring UnemploymentComponents of the Unemployment RateThe Costs of UnemploymentInflationThe Consumer Price IndexThe Costs of InflationLong-Run GrowthOutput and Productivity GrowthLooking Ahead
4 Unemployment Measuring Unemployment employed Any person 16 years old or older (1) who works for pay, either for someone else or in his or her own business for 1 or more hours per week, (2) who works without pay for 15 or more hours per week in a family enterprise, or (3) who has a job but has been temporarily absent with or without pay.unemployed A person 16 years old or older who is not working, is available for work, and has made specific efforts to find work during the previous 4 weeks.
5 Unemployment Measuring Unemployment not in the labor force A person who is not looking for work because he or she does not want a job or has given up looking.labor force The number of people employed plus the number of unemployed.labor force = employed + unemployedpopulation = labor force + not in labor force
6 Unemployment Measuring Unemployment unemployment rate The ratio of the number of people unemployed to the total number of people in the labor force.labor force participation rate The ratio of the labor force to the total population 16 years old or older.
7 Unemployment Measuring Unemployment TABLE Employed, Unemployed, and the Labor Force, 1950–2009(1)(2)(3)(4)(5)(6)Population 16 Years Old or Over (Millions)Labor Force (Millions)Employed (Millions)Unemployed (Millions)Labor Force Participation Rate (Percentage Points)Unemployment Rate (Percentage Points)1950105.062.258.93.359.25.31960117.269.665.83.959.45.51970137.182.8184.108.40.206.91980167.7106.999.37.663.87.11990189.2125.8118.87.066.55.62000212.6142.6136.95.767.14.02009235.8154.1139.914.365.49.3Note: Figures are civilian only (military excluded).
8 Unemployment Components of the Unemployment Rate Unemployment Rates for Different Demographic GroupsTABLE Unemployment Rates by Demographic Group, 1982 and 2010YearsNovember 1982June 2010Total10.89.5White9.68.6Men20+9.08.9Women8.17.1Both sexes16–1921.323.2African American20.215.4Men Women49.539.9
9 Unemployment Components of the Unemployment Rate Unemployment Rates in States and RegionsTABLE Regional Differences in Unemployment, 1975, 1982, 1991, 2003 and 201019751982199120032010U.S. avg.220.127.116.11.0Cal.9.97.512.4Fla.10.78.27.35.111.7Ill.7.111.310.8Mass.11.27.99.05.89.2Mich.12.515.513.6N.J.10.26.65.9N.Y.18.104.22.168.38.3N.C.6.510.3Ohio22.214.171.124Tex.126.96.36.199
10 Unemployment Components of the Unemployment Rate Discouraged-Worker Effectsdiscouraged-worker effect The decline in the measured unemployment rate that results when people who want to work but cannot find jobs grow discouraged and stop looking, thus dropping out of the ranks of the unemployed and the labor force.
11 A Quiet Revolution: Women Join the Labor Force E C O N O M I C S I N P R A C T I C EA Quiet Revolution: Women Join the Labor ForceAs women began joining the labor force in greater numbers in the 1970s and 1980s, their wages relative to men’s wages actually fell.Most economists attribute this decline to the fact that less experienced women were entering the labor force, pointing out the importance of correcting for factors such as experience and education when we analyze labor markets.If you are interested in learning more about the economic history of American women, read the book Understanding the Gender Gap: An Economic History of American Women by Harvard University economist Claudia Goldin.
12 Unemployment Components of the Unemployment Rate The Duration of UnemploymentTABLE Average Duration of Unemployment, 1970–2009Weeks19708.6198418.2199715.8197111.3198515.6199814.5197212.0198615.0199913.4197310.01987200012.619749.8198813.5200113.1197514.2198911.9200216.619761990200319.2197714.3199113.7200419.61978199217.7200518.4197910.8199318.0200616.81980199418.8200719811995200817.91982199616.7200924.4198320.0
13 Unemployment The Costs of Unemployment Some Unemployment Is Inevitable When we consider the various costs of unemployment, it is useful to categorize unemployment into three types:Frictional unemploymentStructural unemploymentCyclical unemployment
14 Unemployment The Costs of Unemployment Frictional, Structural, and Cyclical Unemploymentfrictional unemployment The portion of unemployment that is due to the normal turnover in the labor market; used to denote short-run job/skill matching problems.structural unemployment The portion of unemployment that is due to changes in the structure of the economy that result in a significant loss of jobs in certain industries.natural rate of unemployment The unemployment rate that occurs as a normal part of the functioning of the economy. Sometimes taken as the sum of frictional unemployment rate and structural unemployment rate.cyclical unemployment Unemployment that is above frictional plus structural unemployment.
15 Unemployment The Costs of Unemployment Social Consequences The costs of unemployment are neither evenly distributed across the population nor easily quantified.The social consequences of the Depression of the 1930s are perhaps the hardest to comprehend. Few emerged from this period unscathed.At the bottom were the poor and the fully unemployed, about 25 percent of the labor force. Even those who kept their jobs found themselves working part-time.Many people lost all or part of their savings as the stock market crashed and thousands of banks failed.
16 Inflation The Consumer Price Index consumer price index (CPI) A price index computed each month by the Bureau of Labor Statistics using a bundle that is meant to represent the “market basket” purchased monthly by the typical urban consumer.
17 Inflation The Consumer Price Index ▲ FIGURE The CPI Market BasketThe CPI market basket shows how a typical consumer divides his or her money among various goods and services.Most of a consumer’s money goes toward housing, transportation, and food and beverages.
18 Percentage Change in CPI Percentage Change in CPI InflationThe Consumer Price IndexTABLE The CPI, 1950–2009Percentage Change in CPICPIPercentage Change in CPI19501.324.119705.738.819905.4130.719517.926.019714.440.519914.2136.219521.926.519723.241.819923.0140.319530.826.719736.244.41993144.519540.726.9197411.049.319942.6148.21955-0.426.819759.153.819952.8152.419561.527.219765.856.91996156.919573.328.119776.560.619972.3160.5195828.919787.672.619981.6163.0195929.1197911.365.219992.2166.619601.729.6198013.582.420003.4172.219611.029.9198110.390.92001177.1196230.2198296.52002179.9196330.6198399.62003184.0196431.019844.3103.920042.7188.9196531.519853.6107.62005195.319662.932.41986109.62006201.619673.133.41987113.62007207.3196834.819884.1118.320083.9215.319695.536.719894.8124.02009214.5
19 Inflation The Consumer Price Index producer price indexes (PPIs) Measures of prices that producers receive for products at all stages in the production process.The indexes are calculated separately for various stages in the production process.The three main categories are finished goods, intermediate materials, and crude materials, although there are subcategories within each of these categories.
20 Inflation The Costs of Inflation During inflations, most prices—including input prices like wages—tend to rise together, and input prices determine both the incomes of workers and the incomes of owners of capital and land.So inflation by itself does not necessarily reduce ones purchasing power.
21 The Politics of Cost-of-Living Adjustments E C O N O M I C S I N P R A C T I C EThe Politics of Cost-of-Living AdjustmentsIn the last few years many state governments in the United States have begun to see the costs associated with retiring state workers escalate as the number of retirees has grown.For many of these public-sector retirees, pensions have been tied to the cost of living.No Cost-of-Living Increase for State Retirees in JulyThe Baltimore Sun
22 Inflation The Costs of Inflation Inflation May Change the Distribution of Incomereal interest rate The difference between the interest rate on a loan and the inflation rate.
23 Inflation The Costs of Inflation Administrative Costs and InefficienciesThere may be costs associated even with anticipated inflation. One is the administrative cost associated with simply keeping up.Public Enemy Number One?Economists have debated the seriousness of the costs of inflation for decades.No matter what the real economic cost of inflation, people do not like it.
24 Long-Run Growthoutput growth The growth rate of the output of the entire economy.per-capita output growth The growth rate of output per person in the economy.productivity growth The growth rate of output per worker.
25 Long-Run Growth Output and Productivity Growth ▲ FIGURE Output per Worker Hour (Productivity), 1952 I–2010 IProductivity grew much faster in the 1950s and 1960s than since.
26 Long-Run Growth Output and Productivity Growth ▲ FIGURE 22.3 Capital per Worker, 1952 I–2010 ICapital per worker grew until about 1980 and then leveled off somewhat.
27 Looking AheadThis ends our introduction to the basic concepts and problems of macroeconomics.The first chapter of this part introduced the field; the second chapter discussed the measurement of national product and national income; and this chapter discussed unemployment, inflation, and long-run growth.We are now ready to begin the analysis of how the macroeconomy works.
28 R E V I E W T E R M S A N D C O N C E P T S consumer price index (CPI)cyclical unemploymentdiscouraged-worker effectemployedfrictional unemploymentlabor forcelabor force participation ratenatural rate of unemploymentnot in the labor forceoutput growthper-capita output growthproducer price indexes (PPIs)productivity growthreal interest ratestructural unemploymentunemployedunemployment ratelabor force = employed + unemployed2. population = labor force + not in labor force3.4.