Employment And Unemployment Instructor: Xi Wang

Transcription

1 Spring, 2017 Employment And Unemployment Instructor: Xi Wang

2 RoadMap Introduction Concepts and Definition Pattern Explain

3 Does Employment Status Matter? Yes! Recall that Production=Expenditure=Income? For the income, 2/3 of it is labor income

4 Does Employment Status Matter? Yes! Recall that Production=Expenditure=Income? For the income, 2/3 of it is labor income It means that most of our income comes from our job!!! Employment Matters?

5 Does Employment Status Matter? Example What happens in The Great Depression Unemployed

6 Does Employment Status Matter? Example What happens in The Great Depression? Dorothea Lange's Migrant Mother depicts destitute pea pickers in California, centering on Florence Owens Thompson, age 32, a mother of seven children, in Nipomo, California, March 1936

7 RoadMap Introduction Concepts and Definition Pattern Explain

8 Does Employment Status Matter? Employment Matters. How shall we measure unemployment or employment status of our economy? Typically, we use Unemployment rate-- You may wonder why no level of unemployment?(give me two slides) Unemployment rate: denominator is unemployment level, numerator is level of labor force.

9 Employment and Unemployment, Measurement Labor force: Only those people who wants and is eligible to work, even though he may not have a job yet. Number of Unemployed +Number of Employed = Labor force Labor force+ not want to work(not in labor force)= Potential workers Potential workers: civilian non-institutional population ages 16 and over; Hence children under 16 years of age, people on active duty in the military, and institutionalized people(in Jail or nursing house) are no Potential Workers.

10 Employment and Unemployment, Measurement

11 Employment and Unemployment, Measurement Why don't we just use quantity of employed? Not comparable cross countries and time Unemployment rate Unemployment rate Unemployment rate Unemployed Labor Force Unemployed Unemployed Employed

12 Employment and Unemployment, Measurement Labor Force Labor force participation rate Potential Workers How does unemployment rate move cross time?

13 Employment and Unemployment, Measurement

14 RoadMap Introduction Concepts and Definition Pattern Explain

15 Employment and Unemployment, Pattern Any Pattern? (1)When the overall economy suffers a recession a period in which growth of GDP falls the unemployment rate tends to rise. So unemployment rate negatively correlated with GDP growth The Great Depression of the 1930s, for example. Recent crisis. (2) Unemployment rate is never close to zero, lower bound 2 percent.

16 Negatively correlated: I

17 Negatively correlated: II

18 Negatively correlated: II

19 Employment and Unemployment, Pattern (3)Who gets Unemployed? High educated and middle aged tend to have lower unemployed rate

20 RoadMap Introduction Concepts and Definition Pattern Explain: why do we have unemployment?

21 Labor Market, Demand Let's take labor as a kind of goods, let's see what happens in labor market. Review: What is the fundermental Property of Demand Curve? Downward sloping! Why? Optimization process of consumers! Who is going to consume labor? Firm!

22 Labor Market, Demand Number of workers hired to operate drilling point Total Cost ($) Total Benefit ($) Net Benefit ($) Marginal Benefit ($/gallon)

23 What is the fundermental Property of Demand Curve? Why do we have downward sloping demand curve for labor? Diminishing marginal product of labor : each additional worker creates less marginal output than the workers who were hired before Why? Since you will always hire along your ranking list!

24 Labor Market, Demand Shift Changing output prices Changing demand for the output good or service Changing technology Changing other input prices

25 Labor Market, Demand

26 What is the general property of supply curve? Why? Optimization of Supplyer! Who is providing labor to our market? What is their Optimization process?

27 Labor Market, Supply, Two dimension: How Many? How many hours you would like to work given the wage? Is there any concern when you decide how many hours to work? Yes! More working time means less family time, less Trips, less parties So you need to balance the time of work and Leisure. Since We are Lazy!!!

28 Labor Market, Supply, Two dimension : How Many? Let's use an illustrating way to look at labor supply: What is the normal demand curve looks like? Downward sloping! Since? Diminishing marginal Benefit Now, for example. You have 24 hours per day, you need 8 hours sleep, 1 hour for meals.

29 Labor Market, Supply, Two dimension : How Many? Now, for example. You have 24 hours per day, you need 8 hours sleep, 1 hour for meals Hence you have 15 hours to work at most! What if you decide to work 7 hours? What if you decide to consume 8 hours leisure? What is the price of leisure?

30 Labor Market, Supply, Two dimension : Yes or No? If the working hour is not negotiable! 8 hours, take it or leave it Reservation Wage; It is almost impossible to adjust Working hours!

31 Labor Market, Supply Shift Changing tastes Changing opportunity cost of time Changes in population

32 Equilibrium,Do We have unemployment?

33 Labor Market, Equilibrium There will be no unemployment in Equilibrium, If we only use simple Demand and supply analysis. As we emphasized serveral times, Model is only a simplification If we cannot explain unemployment, we must have oversimplified something

34 Labor Market, Why there is unemployment, Friction Part (1) Some workers who are only willing to work for a wage above the market-clearing wage, Think about our reservation case. (2) Or Worker need to find where the jobs locate, we need to do jobhunting. ----Information friction (3) Firms need different labor.---matching friction Frictional unemployment is the unemployment resulting from imperfect information about available jobs and from the time-consuming process of job search.

35 Labor Market, Why there is unemployment, Market Part Wage rigidity, downward wage rigidity Since Labor Contract, Minimum Wage law Union(the threat of going on strike)

36 Labor Market, Why there is unemployment, Market Part Price will lie above equilibrium Price Quantity of labor supplied persistently exceeds the quantity of labor demanded----structural unemployment(su) Mismatching friction also results in SU. This part is not from information friction.

37 Natural unemployment rate The natural rate of unemployment is the rate around which the actual rate of unemployment fluctuates Mean Cyclical unemployment is defined as the deviation of the unemployment rate from its natural rate. Example: if n.r.u=6%, now our u.r=8% then c/u=8%-6%=2%

38 Natural unemployment rate, Full employment Recall our pattern of unemployment, never hit zero In a market-based economy, there will always be some unemployment, it may comes from structual unemployment or frictional unemployment (Recall definition?)--- These unemployment is healthy, so we tend to think that nature unemployment is the best status. --- Full employment means natural unemployment rate is attained. Cyclical unemployment? Recall the pattern of unemployment? Negatiely correlated with GDP growth!

39 Kinds of unemployment rate, Summary (informational) Frictional Unemployment: short run in nature; consists of those temporarily between jobs. i.e Job searching Structural Unemployment: results from deep-rooted conditions & fundamental changes in our economy. i.e job dismatching Cyclical Unemployment: this is the type that arises as a result of our economic instability/business cycles. Difference between current unemployment rate and Natrual rate

40 Natural unemployment rate The natural rate of unemployment is the rate around which the actual rate of unemployment fluctuates Mean Cyclical unemployment is defined as the deviation of the unemployment rate from its natural rate.

41 Cyclical unemployment rate The natural rate of unemployment is the rate around which the actual rate of unemployment fluctuates Mean Cyclical unemployment is defined as the deviation of the unemployment rate from its natural rate.