Types of Unemployment

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3 Types of Unemployment

4 Types of Unemployment: Frictional Unemployment Occurs when people change jobs, get laid off from their current jobs, take some time to find the right job after they finish their schooling, or take time off from working for a variety of other reasons

5 Types of Unemployment: Structural Unemployment Occurs when workers' skills do not match the jobs that are available. Technological advances are one cause of structural unemployment

6 Types of Unemployment: Seasonal Unemployment Occurs when industries slow or shut down for a season or make seasonal shifts in their production schedules

7 Types of Unemployment: Cyclical Unemployment Unemployment that rises during economic downturns and falls when the economy improves

8 Determining the Unemployment Rate A nation s unemployment rate is an important indicator of the health of the economy. The Bureau of Labor Statistics polls a sample of the population to determine how many people are employed and unemployed. The unemployment rate is the percentage of the nation s labor force that is unemployed. The unemployment rate is only a national average. It does not reflect regional economic trends.

9 Full Employment Full employment is the level of employment reached when there is no cyclical unemployment. Economists generally agree that in an economy that is working properly, an unemployment rate of around 4 to 6 percent is normal.

10 Sometimes people are underemployed, that is working a job for which they are over-qualified, or working part-time when they desire full-time work.

11 Discouraged workers are people who want a job, but have given up looking for one.

12 The Effects of Rising Prices 1. Inflation - a general increase in prices.

13 The Effects of Rising Prices 2. Purchasing power - the ability to purchase goods and services, is decreased by rising prices.

14 The Effects of Rising Prices 3. Price level - the relative cost of goods and services in the entire economy at a given point in time.

15 Price Indexes A price index is a measurement that shows how the average price of a standard group of goods changes over time. The consumer price index (CPI) is computed each month by the Bureau of Labor Statistics. The CPI is determined by measuring the price of a standard group of goods meant to represent the typical market basket of an urban consumer. Changes in the CPI from month to month help economists measure the economy s inflation rate. The inflation rate is the percentage change in price level over time.

16 Calculating Inflation To determine the inflation rate from one year to the next, use the following steps. Calculating the Inflation Rate CPI for Year A minus CPI for Year B divided by CPI for Year B multiplied by 100 For example, if the CPI for 1998 (Year A) = 163 and the CPI for 1997 (Year B) = then, = = x 100 = 1.6 Therefore, the inflation rate for 1998 was 1.6%.

17 Calculating the Inflation Rate CPI for Year A minus CPI for Year B divided by CPI for Year B multiplied by 100 For example, then, if the CPI for 1998 (Year A) = 163 and the CPI for 1997 (Year B) = = = x 100 = 1.6 Therefore, the inflation rate for 1998 was 1.6%.

18 Types of Inflation Creeping Inflation Creeping inflation is inflation that remains low (1 to 3 percent) for a long time.

19 Types of Inflation Chronic Inflation Chronic inflation occurs when the inflation rate rises steadily from month to month over an extended period.

20 Types of Inflation Hyperinflation Hyperinflation is inflation that is growing out of control. Inflation rates may be as high as 100 or even 500 percent. Hyperinflation can sometimes lead to total economic collapse.

21 Hyperinflation Example: Inflation in the Weimar Republic A 50,000,000 (50-million) mark banknote from 1923

22 Hyperinflation Example: Inflation in the Weimar Republic 1000 Mark banknote, over-stamped in red with a one milliard, ([long scale], so 1,000,000,000) mark, issued in Germany during the hyperinflation of 1923

23 Hyperinflation Example: Inflation in the Weimar Republic A medal commemorating Germany's 1923 hyperinflation. The engraving reads: "On 1st November pound of bread cost 3 milliard, 1 pound of meat: 36 milliard, 1 glass of beer: 4 milliard."

24 Causes of Inflation: The Quantity Theory The quantity theory of inflation states that too much money in the economy leads to inflation. Adherents to this theory maintain that inflation can be tamed by increasing the money supply at the same rate that the economy is growing.

25 Causes of Inflation: The Cost-Push Theory According to the cost-push theory, inflation occurs when producers raise prices in order to meet increased costs. Cost-push inflation can lead to a wageprice spiral

26 The Demand-Pull Theory The demand-pull theory states that inflation occurs when demand for goods and services exceeds existing supplies.

27 Effects of Inflation High inflation is a major economic problem, especially when inflation rates change greatly from year to year. Inflation rates around the world in 2007.

28 Annual inflation rates in the United States from 1666 to 2004.

29 Effects of Inflation Purchasing Power In an inflationary economy, a dollar loses value. It will not buy the same amount of goods that it did in years past.

30 Interest Rates Effects of Inflation When a bank's interest rate matches the inflation rate, savers break even. When a bank's interest rate is lower than the inflation rate, savers lose money.

31 Effects of Inflation Income If wage increases match the inflation rate, a worker's real income stays the same. If income is fixed income, or income that does not increase even when prices go up, the economic effects of inflation can be harmful.

32 The Poverty Threshold The poverty threshold is an income level below which income is insufficient to support a family or household.

33 The Poverty Rate The poverty rate is the percentage of people in a particular group who live in households below the official poverty line.

34 Causes of Poverty Lack of Education The median income of high-school dropouts in 1997 was $16,818, which was just above the poverty line for a family of four. In 1999, average annual earnings for high school dropouts was $18,900

35 Location On average, people who live in the inner city earn less than people living outside the inner city. Causes of Poverty

36 Top 10 Poorest Cities (2008 Census Bureau Findings )

37 #1 Detroit, Michigan (32.5%) Cadillac Factory (1910)

38 #1 Detroit, Michigan (32.5%)

39 #2 Buffalo, New York (29.9%) Buffalo Panorama 1911 Passenger boats at Buffalo 1909

40 #2 Buffalo, New York (29.9%) Buffalo, New York from I-190 North entering downtown.

41 #3 Cincinnati, Ohio (27.8%)

42 #4 Cleveland, Ohio (27.0%)

43 #5 Miami, Florida (26.9%)

44 #6 St. Louis, Missouri (26.8%)

45 #7 El Paso, Texas (26.4%) Downtown El Paso in 1908.

46 #7 El Paso, Texas (26.4%)

47 #8 Milwaukee, Wisconsin (26.2%)

48 #9 Philadelphia, Pennsylvania (25.1%)

49 #10 Newark, New Jersey (24.2%)

50 Causes of Poverty Shifts in Family Structure Increased divorce rates result in more single-parent families and more children living in poverty.

51 Causes of Poverty Economic Shifts Workers without college-level skills have suffered from the ongoing decline of manufacturing, and the rise of service and high technology jobs.

52 Causes of Poverty Racial and Gender Discrimination Some inequality exists in wages between whites and minorities, and men and women.

53 Income Distribution in the Income Inequality United States The Lorenz Curve illustrates income distribution. Income Gap A 1999 study showed that the richest 2.7 million Americans receive as much income after taxes as the poorest 100 million Americans. Differences in skills, effort, and inheritances are key factors in understanding the income gap.

54 Government Policies: Combating Poverty Employment Assistance The minimum wage and federal and state job-training programs aim to provide people with more job options.

55 Government Policies Combating Poverty: Welfare Reform Temporary Assistance for Needy Families (TANF) is a program which gives block grants to the states, allowing states to implement their own assistance programs. Workfare programs require work in exchange for temporary assistance.

56 CH 13 Review Questions 1. What are three effects of inflation? Give an example of each. 2. List and describe three ways the government combats poverty. 3. What are the three cause of inflation and how do they differ? 4. Name three groups that are most affected by inflation. 5. How can full employment be a problem? What issues arise when we have a very low unemployment rate?