21-(UE) Unemployment

  1. 1st goal of Macro is growth, the second is to reduce unemployment
  2. Who’s unemployed?
    1. 1/3 out of labor force( unemployable)
    2. Bureau of labor statistics formula(No work+looking for work=unemployed)
      1. Housewife is employed but she is not looking
      2. Someone working part-time but is looking for fulltime work is employed
      3. Discouraged worker is one who has stopped looking because it’s become a waste of time(under this model he is not counted as UE)
    3. Economics see UE as a market
      1. Qualified+ Ready to work+ no employment= UE
      2. Low?- Wages are above equilibrium
    4. Why wages are above equilibrium
      1. Min. wage laws
      2. Strong unions playing hardball( unions would rather lose members, than decrease wages)
      3. Implicit contract
        1. Scheduled pay increases
        2. Benefits
        3. All are not guaranteed, but implicitly so
      4. Fear of loss of morale
        1. If implicit contract, it’s tough to go to employees and renege on a promise
        2. Union strikes and grievances
  3. The cost of unemployment
    1. Social pathology
      1. Increased crime
      2. Dysfunction in home
      3. Increased anxiety
    2. Reduces size of economy
      1. Lost output
      2. Consumption of welfare resources
  4. Types of unemployment
    1. Natural rate
      1. Natural rate variables
        1. Laws and regulations( the more regulations, the less hiring and more firing is being done)
        2. Entering workforce/retiring
        3. There will never be 0% unemployment
      2. Reduce natural rate
        1. Adjust unemployment benefits so they are higher at the beginning and taper from there
        2. Expand Gov’t programs concerning: worker training, college scholarships, etc
        3. Dreg
    2. Cyclical
      1. Bears and bulls
      2. Less product demand = less labor demand( and vice versa)
      3. Solutions
        1. Fiscal- tax cuts
        2. Monetary- decrease interest rates
  5. U.S. vs. EUR.
    1. U.S.
      1. Fluctuates below 10%, usually around 5-7%
      2. Cares more about unemployment than inflation
    2. EUR
      1. Hovers around 10%
      2. More Gov’t interaction
        1. Higher min wage
        2. Longer vacation time
        3. Regulation of when places of biz can conduct work
        4. Better benefits for employees
      3. U.K. has reformed by deregulating
        1. Lower UE( around U.S. numbers)
        2. Still has a higher number of benefits and wage controls
  6. Wages increase with GDP growth
    1. Get more productive
      1. Education
      2. Technology
    2. Stimulate demand
    3. Redistribution does nothing



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