Opening Questions (Discuss in Small Groups) 1.How would you characterize the relationship between GDP and Unemployment? 2.Which demographic groups, if.

Opening Questions(Discuss in Small Groups)

1. How would you characterize the relationship between GDP and Unemployment?

2. Which demographic groups, if any, might have higher than average unemployment rates?

3. How well do you think the unemployment rate captures the true picture of joblessness in the economy?

Employment

Consequences and CalculationsModules 12 and 13

Figure 12.1 The U.S. Unemployment Rate, 1948–2010Ray and Anderson: Krugman’s Macroeconomics for AP, First EditionCopyright © 2011 by Worth Publishers

Figure 12.5 Growth and Changes in Unemployment, 1949–2009Ray and Anderson: Krugman’s Macroeconomics for AP, First EditionCopyright © 2011 by Worth Publishers

Labor Force ParticipationPercentage of civilian population 16 years or

older who are part of the labor force

Figure 12.2 Alternative Measures of Unemployment, 1994–2010Ray and Anderson: Krugman’s Macroeconomics for AP, First EditionCopyright © 2011 by Worth Publishers

Workers Not Counted

• Underemployed– Working part time, but want full time– “Part-time for Economic Reasons”

• Not in labor force– Marginally-attached workers

• Would like a job, but have not looked in past 4 weeks• Discouraged workers

– Believe there is no job for them

Figure 12.3 Unemployment Rates of Different Groups, 2007Ray and Anderson: Krugman’s Macroeconomics for AP, First EditionCopyright © 2011 by Worth Publishers

Unnumbered Figure 12.1 Rocky Mountain LowRay and Anderson: Krugman’s Macroeconomics for AP, First EditionCopyright © 2011 by Worth Publishers

EmploymentLabor Force = Employed + Unemployed

Employed• Work for pay OR• 15 hours of unpaid work in family

business OR• Temporarily absent from work

Unemployed• Did no work for pay or profit• Actively looked for work• Available for work

Not Counted in Labor Force• Under 16• Institutionalized (military; prison)• People who have stopped

seeking work

Figure 13.1 Distribution of the Unemployed by Duration of Unemployment, 2000 and 2010Ray and Anderson: Krugman’s Macroeconomics for AP, First EditionCopyright © 2011 by Worth Publishers

Components ofUnemployment

• Frictional• Seasonal• Structural• Cyclical

Components of Unemployment

• Frictional–In between jobs

• Seasonal–Unemployment due to time of year

Components of Unemployment

• Structural– More job seekers than jobs available at a given

wage rate– Persistent unemployment due to skills mismatch– Declining industries– Wages

• Minimum wage• Unions• Efficiency wages

Figure 13.2 The Effect of a Minimum Wage on the Labor MarketRay and Anderson: Krugman’s Macroeconomics for AP, First EditionCopyright © 2011 by Worth Publishers

Natural Unemployment Rate

• “Ordinary” level of unemployment–Frictional + Structural

• For USA it is currently about 5.5%

What Affects Natural Rate?

• Labor force characteristics• Labor markets effects that result in higher

wages– Minimum wage– Unions

• Technology helps reduce frictional unemployment

• Job training and employment subsidies

Figure 13.3 The Changing Makeup of the U.S. Labor Force, 1948–2009Ray and Anderson: Krugman’s Macroeconomics for AP, First EditionCopyright © 2011 by Worth Publishers

Cyclical Unemployment

• Unemployment that is the result of the business cycle (recessions)

Cyclical Unemployment = Actual Unemployment – Natural Unemployment