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UNEMPLOYMENT, INFLATION AND LONG-RUN GROWTH (Measuring unemployment
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UNEMPLOYMENT, INFLATION AND LONG-RUN GROWTH
-The unemployment rate & inflation are key microeconomics variables
- Each month the US Bureau of Labor Statistic (BLS) announces the previous month`s unemployment rate and the consumer price index (CPI)
-Although much of microeconomics is concerned with business cycle, long-run growth is also a major concern
Measuring unemployment
- employed, any person 16 years old or older (1) who works for pay, either for someone else or in his or her own business for 1 or more hour per week, (2) who works without pay for 15 or more hours per week in a family enterprise, or (3) who has a job but has been temporarily absent with or without pay
- unemployment, A person 16 years old or older who is not working, is available for work and has made specific effort to find work during the previous 4 weeks
labor force
the number of people employed plus the number of unemployed
Labor force = employed + unemployed
Population = labor force + not in labor force
unemployment rate
The ratio of the number of people unemployed to total number of people in the labor force
unemployment rate = unemployed / employed + unemployed
not in labor force
A person who is not looking for work because he or she does not want a job or has given up looking
labor force participants rate
The ratio of labor force to total population 16 years old or older
labor force participants rate = labor force / population
Components of the unemployment rate Discourage worker effects
- the decline in the measured unemployment rate that result when people who want to work but can`t find job grow discourage and stop looking, thus dropping out of the ranks of the unemployed and the labor force.
- If a BLS survey respondent cites inability to find employment as sole reason for not searching for work that person might be classified as a discourage worker.
- Some economists argue that including the number of discourage workers as unemployed gives a better picture of the unemployment situation.
The cost unemployment
Structural unemployment
The portion of unemployment that is as a result of changes in the structure of the economy that result in a significant loss of jobs in certain industries.
Natural rate of unemployment
The unemployment rate that occurs as a normal part of the functioning of the economy. Sometimes taken as the sump of the frictional unemployment rate and the structural unemployment rate.
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Frictional unemployment
The portion of unemployment that is as a result of the normal turnover in the labor market; use to donate short run job/skill matching problems.
Inflation & Deflation The consumer price index
- Consumer price index (CPI), A price index computed each month by The Bureau of Labor Statistic using a bundle that is meant to represent the
market basket purchased monthly by the typical urban consumer.
- Producer price indexes (PPIs), Measure of price that producers receive for products at all stages in the production process.
- Once called wholesale price indexes, PPIs are calculated separately for various stages in the production process.
The cost of inflation
Inflation may change the distribution income
- The effects of anticipated inflation on the distribution of income are likely to be fairly small, since people and institution will adjust to the anticipated inflation.
- Unanticipated inflation may have large effects, depending among other things, on the amount of indexing to inflation.
- Real interest rate, the different between the interest rate on a loan and the inflation rate.
- Actual inflation that is higher (lower) that anticipated benefit debtors (creditors).
Administrative cost & Inefficiencies
- There may be costs associated even with anticipated inflation, such as the administrative cost associated with simply keeping up.
- Interest rate tend to rise with anticipated inflation. When interest rate are high, the opportunity cost holding cash outside banks is high.
- During inflation, most price - including input price like wages - tend to rise together and input price determine both the income of workers and the incomes of owners of capital and land.
- So inflation by itself does not necessarily reduce one`s purchasing power.
What about deflation
- In 2015 most of developed world experienced very little inflation, so some governments began to worry about deflation.
- If falling prices are anticipated, borrow will gain at the expense of lenders, and those on fixed pensions will gain at the expense of government and firm paying those pensions.
Long - run growth Output growth, The growth rate of the output of the entire economy.Per-capita output growth, The growth rate of output per person in the economy.
Productivity growth, The growth rate of output per worker.
Social consequences
The cost of unemployment are neither evenly distributed across the population nor easily quantified.The social consequences of the Depression of the 1930`s are perhaps the hardest to comprehend ;
- at the bottom were the poor and the fully unemployed, about 25% of the labor force.
- Even those who keep their jobs found themselves working part time.
- Many people lost all or part of their savings as the stock market crashed and thousands of banks failed.