Unemployment. Sherif Khalifa. Sherif Khalifa () Unemployment 1 / 29

Transcription

1 Sherif Khalifa Sherif Khalifa () Unemployment 1 / 29

2 Unemployment is the macroeconomic problem that affects people most. People rely on their labor earnings to enjoy their living standards. People get from their work their income and a sense of personal accomplishment. Unemployment means lower living standards, anxiety about the future, psychological distress, and diminished self esteem. The unemployed workers are not contributing to the economy s production of goods and services. Sherif Khalifa () Unemployment 2 / 29

3 Definition Employed includes those who worked as paid employees, worked in their own business, or worked in a family member s business. It also includes those who were not working but who had jobs from which they were temporarily absent because of vacation, illness or bad weather. Definition Unemployed includes those who were not employed, were available for work, and had tried to find employment during the previous 4 weeks. It also includes those waiting to be recalled to a job from which they had been laid off. Sherif Khalifa () Unemployment 3 / 29

4 Definition The adult population is divided into civilian and non civilian population. The non civilian population includes those in the military, those in prisons and those institutionalized. The civilian population includes everybody else. Definition The labor force is the sum of the employed and the unemployed. Definition Those not in the labor force are those without a job but are not looking for one. Sherif Khalifa () Unemployment 4 / 29

5 Civilian Population Non Civilian Population Labor Force Not in Labor Force Employed Unemployed Sherif Khalifa () Unemployment 5 / 29

6 Example I live in a mental hospital since I started watching too much Dr. Phill. Sherif Khalifa () Unemployment 6 / 29

7 Example I live in a mental hospital since I started watching too much Dr. Phill. Non civilian population. Sherif Khalifa () Unemployment 6 / 29

8 Example I live in a mental hospital since I started watching too much Dr. Phill. Non civilian population. Iam in prison for selling fake IDs. Sherif Khalifa () Unemployment 6 / 29

9 Example I live in a mental hospital since I started watching too much Dr. Phill. Non civilian population. Iam in prison for selling fake IDs. Non civilian population. Sherif Khalifa () Unemployment 6 / 29

10 Example I live in a mental hospital since I started watching too much Dr. Phill. Non civilian population. Iam in prison for selling fake IDs. Non civilian population. I fly F-16s for the US army. Sherif Khalifa () Unemployment 6 / 29

11 Example I live in a mental hospital since I started watching too much Dr. Phill. Non civilian population. Iam in prison for selling fake IDs. Non civilian population. I fly F-16s for the US army. Non civilian population. Sherif Khalifa () Unemployment 6 / 29

12 Example I live with my parents, and only look for work when they yell at me which they have not done in a month. Sherif Khalifa () Unemployment 7 / 29

13 Example I live with my parents, and only look for work when they yell at me which they have not done in a month. Not in labor force. Sherif Khalifa () Unemployment 7 / 29

14 Example I live with my parents, and only look for work when they yell at me which they have not done in a month. Not in labor force. Iam at home taking care of my kids full time. Sherif Khalifa () Unemployment 7 / 29

15 Example I live with my parents, and only look for work when they yell at me which they have not done in a month. Not in labor force. Iam at home taking care of my kids full time. Not in labor force. Sherif Khalifa () Unemployment 7 / 29

16 Example I live with my parents, and only look for work when they yell at me which they have not done in a month. Not in labor force. Iam at home taking care of my kids full time. Not in labor force. I stay at home all week watching Jerry Springer and do not look for work. Sherif Khalifa () Unemployment 7 / 29

17 Example I live with my parents, and only look for work when they yell at me which they have not done in a month. Not in labor force. Iam at home taking care of my kids full time. Not in labor force. I stay at home all week watching Jerry Springer and do not look for work. Not in labor force. Sherif Khalifa () Unemployment 7 / 29

18 Example I live with my parents, and only look for work when they yell at me which they have not done in a month. Not in labor force. Iam at home taking care of my kids full time. Not in labor force. I stay at home all week watching Jerry Springer and do not look for work. Not in labor force. Iam a star basketball player at a University. Sherif Khalifa () Unemployment 7 / 29

19 Example I live with my parents, and only look for work when they yell at me which they have not done in a month. Not in labor force. Iam at home taking care of my kids full time. Not in labor force. I stay at home all week watching Jerry Springer and do not look for work. Not in labor force. Iam a star basketball player at a University. Not in labor force. Sherif Khalifa () Unemployment 7 / 29

20 Example Iam a basketball coach at a University. Sherif Khalifa () Unemployment 8 / 29

21 Example Iam a basketball coach at a University. Employed. Sherif Khalifa () Unemployment 8 / 29

22 Example Iam a basketball coach at a University. Employed. Iam an overworked senior partner in a law firm, who is now in a vacation in the Bahamas. Sherif Khalifa () Unemployment 8 / 29

23 Example Iam a basketball coach at a University. Employed. Iam an overworked senior partner in a law firm, who is now in a vacation in the Bahamas. Employed. Sherif Khalifa () Unemployment 8 / 29

24 Example Iam a basketball coach at a University. Employed. Iam an overworked senior partner in a law firm, who is now in a vacation in the Bahamas. Employed. I work as Goofy in Disney Land. Sherif Khalifa () Unemployment 8 / 29

25 Example Iam a basketball coach at a University. Employed. Iam an overworked senior partner in a law firm, who is now in a vacation in the Bahamas. Employed. I work as Goofy in Disney Land. Employed. Sherif Khalifa () Unemployment 8 / 29

26 Example Iam a basketball coach at a University. Employed. Iam an overworked senior partner in a law firm, who is now in a vacation in the Bahamas. Employed. I work as Goofy in Disney Land. Employed. Iam a struggling comedian looking for work, but Iam not very funny. Sherif Khalifa () Unemployment 8 / 29

27 Example Iam a basketball coach at a University. Employed. Iam an overworked senior partner in a law firm, who is now in a vacation in the Bahamas. Employed. I work as Goofy in Disney Land. Employed. Iam a struggling comedian looking for work, but Iam not very funny. Unemployed. Sherif Khalifa () Unemployment 8 / 29

28 Definition The unemployment rate is the percentage of the labor force that is unemployed. Unemployment rate = Unemployed Labor force x100 Definition The labor force participation rate is the percentage of the civilian population that is in the labor force. Labor force participation rate = Labor force Civilian Population x100 Sherif Khalifa () Unemployment 9 / 29

29 Civilian Population: Mn. Employed: Mn. Unemployed: 8.1 Mn. Unemployment rate = 8.1 x100 = 5.5% ( ) Labor force participation rate = ( ) x100 = 66% Sherif Khalifa () Unemployment 10 / 29

30 Sherif Khalifa () Unemployment 11 / 29

31 12 (percentage of labor force) Sherif Khalifa () Unemployment 12 / 29

32 Definition The natural rate of unemployment is the average rate of unemployment around which the economy fluctuates. The natural rate is the rate of unemployment toward which the economy gravitates in the long run, given all the labor market imperfections that impede workers from instantly finding jobs. Definition The cyclical unemployment is the deviation of unemployment from its natural rate, and refers to the year to year fluctuations in unemployment around its natural rate. It is closely associated with the short run fluctuations in economic activity. Sherif Khalifa () Unemployment 13 / 29

33 The unemployment rate is not a perfect indicator of joblessness or the health of the labor market as: It does not consider discouraged workers who are individuals who would like to work but have given up looking for a job. It does not consider people working part time because full-time jobs are not available. It does not consider skill mismatch, or the mismatch between worker s qualifications and the skill requirement of the job. It does not distinguish between short term and long term unemployment. Sherif Khalifa () Unemployment 14 / 29

34 Sherif Khalifa () Unemployment 15 / 29

35 Definition Underemployment is the under-use of a worker due to a job that does not use the worker s skills, or is part time, or leaves the worker idle. Definition U6 is Total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force. Sherif Khalifa () Unemployment 16 / 29

36 Unemployment rate = U L = U E + U Job Separation Employed Unemployed Job Finding Sherif Khalifa () Unemployment 17 / 29

37 s: job separation rate f: job finding rate f fu = se fu = s (L U) ( ) ( U f = s 1 U ) L L ( ) ( ) U U f = s s L L ( ) ( ) U U + s = s L L ( ) U (s + f ) = s L ( ) U s = L s + f Sherif Khalifa () Unemployment 18 / 29

38 Example Assume in an economy, the separation rate=s=0.01 and the finding rate=f=0.20. Compute the natural rate of unemployment. U L = = Sherif Khalifa () Unemployment 19 / 29

39 Workers have different characteristics and abilities, and jobs have different attributes. It takes time to match workers with specific characteristics with jobs with certain attributes. Information about job candidates and job vacancies is disseminated slowly. Searching for an appropriate job takes time and effort, and this decreases the finding rate. Sherif Khalifa () Unemployment 20 / 29 Unemployment Frictional Unemployment Definition The unemployment caused by the time it takes workers to search for a job is called frictional unemployment. Definition Frictional unemployment occurs because it takes time for workers to search for jobs that best suit their skills.

40 Frictional Unemployment Definition A sectoral shift is the change in the composition of demand among industries or sectors. The types of products that firms and households demand vary over time. As the demand shifts, so does the demand for labor that produces those products. Workers in declining industries find themselves out of work and searching for new jobs. It takes time for searching workers to be matched with new available job vacancies. Sherif Khalifa () Unemployment 21 / 29

41 insurance decreases the hardship of unemployment, but increases unemployment. The unemployed who receive insurance are less pressured to search for new employment. The unemployed who receive insurance turn down unattractive job offers and remain unemployed. The unemployed who receive insurance are less likely to seek jobs with stable employment prospects and guarantees of job security. Sherif Khalifa () Unemployment 22 / 29 Unemployment Unemployment Insurance Definition Unemployment insurance is a government program that partially protects worker s incomes when they become unemployed. Definition Unemployment insurance is when unemployed workers collect a fraction of their wages for a certain period of time after losing their jobs.

42 Workers are unemployed because there is a mismatch between the number of people who want to work and the number of jobs available. At the going wage, the quantity of labor supplied exceeds the quantity of labor demanded causing unemployment. Sherif Khalifa () Unemployment 23 / 29 Unemployment Structural Unemployment Definition Structural unemployment occurs because the number of jobs available is insuffi cient to provide a job for everyone who wants one. Definition The unemployment resulting from wage rigidity is called structural unemployment. Definition Wage rigidity is the failure of wages to adjust to a level at which labor supply equals labor demand.

43 W 1 W unemployment S actual wage W E D L Sherif Khalifa () Unemployment 24 / 29

44 Structural Unemployment Definition The minimum wage law forces the wage to remain above the level that balances supply and demand. Minimum wage laws set a legal minimum on the wages that firms pay their employees. The government causes wage rigidity when it prevents wages from falling to equilibrium levels. For most workers, the minimum wage is not binding because they earn well above the minimum wage. The minimum wage increases the wage of the unskilled and inexperienced above its equilibrium level. Sherif Khalifa () Unemployment 25 / 29

45 The wages of unionized workers are determined by bargaining between unions and firm management. The final agreement increases the wage above the equilibrium level and the firm decides how many workers to employ. This causes a decrease in the number of workers hired, and an increase in structural unemployment. The insiders try to keep their firm s wages high, and the outsider unemployed bear part of the cost of higher wages. Sherif Khalifa () Unemployment 26 / 29 Unemployment Structural Unemployment Definition A Union is a worker association that bargains with employers over wages, benefits, and working conditions.

46 Structural Unemployment Definition Effi ciency wages are above-equilibrium wages paid by firms to increase worker productivity. High effi ciency wages are intended to make workers more productive and effi cient. Better paid workers can afford a nutritious diet, and healthier workers are more productive. High wages lowers labor turnover, as the more the firm pays the greater the incentive to stay with the firm. The average quality of a firm s work force depends on the wage it pays its employees. High wages make workers more eager to keep their jobs by putting forward their best effort. Sherif Khalifa () Unemployment 27 / 29

47 Automation Definition Automation means that the workforce is being replaced by robots and artificial intelligence. Wave of economic dislocations will come from the relentless pace of automation. Routine and repetitive tasks are easier and cheaper to automate. Robots threaten many more traditional assembly line jobs. Automation also creates new jobs for high skilled workers. Sherif Khalifa () Unemployment 28 / 29

48 Outsourcing Definition Outsourcing involves the contracting out of a business process and operations to another party. Outsourcing is an agreement in which one company contracts its own internal activity to a different company. This includes offshoring or relocating a business to a distant country in search of cheaper labor. This can lead to loss of jobs as domestic workers are substituted by foreign workers in the offshore facility. Sherif Khalifa () Unemployment 29 / 29