FACING ECONOMIC CHALLENGES Unemployment  Poverty  Inflation

Unemployment Unemployment has a variety of causes. Some level of unemployment is expected, even when an economy is healthy. As the nation goes through business cycles, it faces the problems of unemployment and inflation. Persistent unemployment can lead to poverty. During periods of inflation, wages buy less.

Measuring Unemployment The Unemployment Rate Civilian labor force—people over 16 who are working, looking for work Bureau of Labor Statistics determines unemployment rate divides number of unemployed workers by total in civilian labor force does not count discouraged workers who have stopped looking or are underemployed Underemployed—work part-time, want full-time or work below skill level

Measuring Unemployment Full Employment Full employment—no unemployment caused by decreased economic activity Always some degree of unemployment: people relocate; look for better job; can’t find appropriate job Unemployment rate of 4 to 6 percent considered full employment in U.S. Different acceptable rates in countries with different labor markets, economic policies October 2014: U.S. 5.8%, Michigan 7.1%

Types of Unemployment Frictional Unemployment Not a threat to economic stability Reflects workers’ freedom to find best job at highest wage Childrearing parents returning to work new college graduates looking for first job experienced workers who want to switch jobs Seasonal Unemployment Demand for some jobs changes dramatically from season to season construction work falls off in winter tourism peaks at certain times of year; varies by region migrant farm work drops off in winter; migrant families suffer

Types of Unemployment Structural Unemployment As businesses become more efficient, require fewer workers new technologies replace workers or require them to retrain new industries requiring specialized education do not employ unskilled change in consumer demand can shift type of workers needed offshore outsourcing sometimes leaves people out of work Cyclical Unemployment Employers lay off workers during low points in business cycle During recession, hard to find new jobs since demand for labor drops Unemployment period varies by type; average relatively short over one third of unemployed find work in five weeks or less

Poverty & Income Distribution What Is Poverty? The Poverty Threshold People are considered in poverty if income falls below poverty threshold Also called the poverty line Calculated based on costs of nutritious food, other necessities differs by size of household adjusted annually

What Is Poverty? The Poverty Rate Poverty rate—percent of people in households below poverty threshold based on population as a whole Poverty does not hit all sectors of society equally. Most at risk: Children, minorities; inner-city, rural, and single– mother families

Poverty Rates for Children

The Problem of Poverty Factors Affecting Poverty Education—the higher the level of education, the higher the income Discrimination—against minorities, women Includes wage discrimination, occupational segregation Demographic trends—single-parent families have more economic problems Change from manufacturing to service jobs has resulted in lower wages for low-skilled workers

Income Distribution Income distribution—how income is divided among people in a nation Income inequality—unequal distribution of income; some always exists

Antipoverty Programs Programs for Low-Income Households Supplemental Security Income (SSI) Provides cash to meet basic needs in food, clothing, and shelter for disabled people Supplemental Nutrition Assistance Program (SNAP), formerly the Federal Food Stamp Program Created to provide nutritious food Medicaid Provides medical care Earned-income tax credit refunds taxes deducted from paychecks ABC’s TANF, PHAP, LIHEAP, RHRLGP, DWP, etc.

Inflation Defined A sustained rise in the general price level, or a sustained fall in the purchasing power of money Hyperinflation over 50 percent per month Deflation decrease in general price level

What Is the Impact of Inflation? Effect 1: Decreasing Value of the Dollar Rising consumer price index represents declining value of the dollar People on a fixed income are especially vulnerable each dollar they have buys less every year Inflation helps people who borrow at a fixed rate of interest

What Is the Impact of Inflation? Effect 2: Increasing Interest Rates Lenders raise interest rates to ensure profit on loans Businesses avoid borrowing to expand or make capital improvements Consumers less likely to finance high-priced items Monthly credit card payments go up as rates rise

What Is the Impact of Inflation? Effect 3: Decreasing Real Returns on Savings Interest on savings tends to increase during inflationary times Any interest you earn on investments is worth less than it was before