Employment And Unemployment Instructor: Xi Wang

Transcription

1 30th June, 2016 Employment And Unemployment Instructor: Xi Wang

2 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?

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

4 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

5 Does Employment Status Matter? Employment Matters? How shall we measure unemployment or employment status of our economy? Unemployment rate Since it is a rate. First we shall measure what is the amount of Labor force; Then quantity of unemployed

6 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),

7 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

8 Employment and Unemployment, Measurement Labor Force Labor forceparticipation rate PotentialWorkers How does unemployment rate move cross time?

9 Employment and Unemployment, Measurement Labor Force Labor forceparticipation rate PotentialWorkers How does unemployment rate move cross time? Notes: Grey area means recession

10 Employment and Unemployment, Measurement Notes: Grey area means recession

11 Employment and Unemployment, Pattern Any Pattern? (1)When the overall economy suffers a recession a period in which GDP falls the unemployment rate tends to rise. So unemployment rate negatively correlated with GDP growth The Great Depression of the 1930s, for example (2) Unemployment rate is never close to zero, lower bound 4 percent.

12 Employment and Unemployment, Pattern Who gets Unemployed? High educated and middle aged tend to have lower unemployed rate Explanation?

13 Does the unemployment rate measure the extent of joblessness? Understates Joblessness Discouraged workers are non-working people unemployed, who are but s/he capable is not of working but are not actively looking for a job. REALLY So actively they are seeking willing to work, but got discouraged and counted as employment not in the labor force Part-time workers who d rather be working full-time Overstates Joblessness A person may self-report being A person may self-report being unemployed, but is actually working, but in an illegal job or in Underemployment is the number of people the who underground work (esp. economy during a recession) but receive lower wages than they Establishment otherwise survey would during an expansion due to smaller number of hours worked, lower-paying jobs, or both.

14 Labor Market, Demand What is the fundermental Property of Demand Curve? Downward sloping! What? Optimization process of buyer! Who is going to buy labor? Firms!

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

16 Labor Market, Demand 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 Value of the marginal product of labor: market value of a worker s marginal product the

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

18 Labor Market, Demand

19 Labor Market, Supply What is the general property of supply curve? Why? Optimization of Supplyer! Who is providing labor to our market? What is their Optimization process?

20 Labor Market, Supply, Two dimension: How Many? How many hour 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 Party So you need to balance the time of work and Leisure. Since We are Lazy!!!

21 Labor Market, Supply, Two dimension : How Many? Let's use a 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

22 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?

23 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!

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

25 Equilibrium,Do We have unemployment?

26 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 the pattern in data, we must have oversimplified something

27 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 job-hunting Information friction (3) Firms need different labor.---matching friction, Structual unemployment Frictional unemployment is the unemployment resulting from imperfect information about available jobs and from the time-consuming process of job search.

28 Why Is There FRICTIONAL Unemployment? The matching of job seekers to employers is not instantaneous. Firms do not have complete information on the skills, experiences, and preferences of job seekers. Job seekers do not have complete information on the specifics of each job opening.

29 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) Efficiency wages(book reading!)

30 Wage rigidity, Distribution of Wage changes in Big firms

31 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

32 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%

33 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!

34 Kinds of unemployment rate, Summary 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

35 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.

36 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.

37 Book Reading P Quiz 3