Principles of Economics, Chapter 22 - Unemployment, Inflation, and Long-Run Growth PDF

Principles of Economics Thirteenth Edition Chapter 22 Unemployment, Inflation, and Long-Run Growth Copyright © 2020, 2016, 2011 Pearson Education, Inc....

Principles of Economics Thirteenth Edition Chapter 22 Unemployment, Inflation, and Long-Run Growth Copyright © 2020, 2016, 2011 Pearson Education, Inc. All Rights Reserved Chapter 22 Unemployment, Inflation, and Long-Run Growth The unemployment rate and inflation are key macroeconomic variables. Each month the U.S. Bureau of Labor statistics (BLS) announces the previous month’s unemployment rate and the consumer price index (CPI). Although much of macroeconomics is concerned with business cycles, long-run growth is also a major concern. Copyright © 2020, 2016, 2011 Pearson Education, Inc. All Rights Reserved Unemployment 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 hours 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. unemployed A person 16 years old or older who is not working, is available for work, and has made specific efforts to find work during the previous 4 weeks. Copyright © 2020, 2016, 2011 Pearson Education, Inc. All Rights Reserved Measuring Unemployment (1 of 2) not in the 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 The number of people employed plus the number of unemployed. labor force=employed+unemployed population = labor force+not in labor force Copyright © 2020, 2016, 2011 Pearson Education, Inc. All Rights Reserved Measuring Unemployment (2 of 2) unemployment rate The ratio of the number of people unemployed to the total number of people in the labor force. unemployed unemployment rate = employed+unemployed labor force participation rate The ratio of the labor force to the total population 16 years old or older. labor force labor force participation rate = population Copyright © 2020, 2016, 2011 Pearson Education, Inc. All Rights Reserved Table 22.1 Employed, Unemployed, and the Labor Force, 1950–2017 Blank (1) (2) (3) (4) (5) (6) Population Labor Employed Unemployed Labor Force Unemployment 16 Years Force (Millions) (Millions) Participation Rate Old or Over (Millions) Rate (Percentage (Millions) (Percentage Points) Points) 105.0 105 point 0 1950 62.2 58.9 3.3 59.2 5.3 1960 117.2 69.6 65.8 3.9 59.4 5.5 1970 137.1 82.8 78.7 4.1 60.4 4.9 1980 167.7 106.9 99.3 7.6 63.8 7.1 7.0 7 point 0 1990 189.2 125.8 118.8 66.5 5.6 4.0 4 point 0 2000 212.6 142.6 136.9 5.7 67.1 2010 237.8 153.9 139.1 14.8 64.7 9.6 7.0 7 point 0 2017 255.1 160.3 153.3 62.9 4.4 Note: Figures are civilian only (Military excluded). Source: Economic Report of the President, 2018 and U.S. Bureau of Labor Statistics. Copyright © 2020, 2016, 2011 Pearson Education, Inc. All Rights Reserved Components of the Unemployment Rate (1 of 3) Unemployment Rates for Different Demographic Group Table 22.2 Unemployment Rates by Demographic Group, 1982 and 2018 Blank Years November 1982 February 2018 Total Blank 10.8 4.1 White Blank 9.6 3.7 Men 20+ 9.0 9 point 0 3.4 Women 20+ 8.1 3.3 Both sexes 16-19 21.3 12.6 African American Blank 20.2 6.9 Men 20+ 19.3 5.9 Women 20+ 16.5 6.2 Both sexes 16-19 49.5 27.2 Source: U.S. Bureau of Labor Statistics. Data are seasonally adjusted. Copyright © 2020, 2016, 2011 Pearson Education, Inc. All Rights Reserved Components of the Unemployment Rate (2 of 3) Discouraged-Worker Effects discouraged-worker effect The decline in the measured unemployment rate that results when people who want to work but cannot find jobs grow discouraged and stop looking, thus dropping out of the ranks of the unemployed and the labor force. Copyright © 2020, 2016, 2011 Pearson Education, Inc. All Rights Reserved Components of the Unemployment Rate (3 of 3) Discouraged-Worker Effects If a BLS survey respondent cites inability to find employment as the sole reason for not searching for work, that person might be classified as a discouraged worker. Some economists argue that including the number of discouraged workers as unemployed gives a better picture of the unemployment situation. Copyright © 2020, 2016, 2011 Pearson Education, Inc. All Rights Reserved The Costs of Unemployment (1 of 4) There are three categories of unemployment: – Frictional unemployment – Structural unemployment – Cyclical unemployment Copyright © 2020, 2016, 2011 Pearson Education, Inc. All Rights Reserved The Costs of Unemployment (2 of 4) Frictional, Structural, and Cyclical Unemployment frictional unemployment The portion of unemployment that is as a result of the normal turnover in the labor market; used to denote short-run job/skill-matching problems. 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. Copyright © 2020, 2016, 2011 Pearson Education, Inc. All Rights Reserved The Costs of Unemployment (3 of 4) Frictional, Structural, and Cyclical Unemployment natural rate of unemployment The unemployment rate that occurs as a normal part of the functioning of the economy. Sometimes taken as the sum of the frictional unemployment rate and the structural unemployment rate. cyclical unemployment Unemployment that is above frictional plus structural unemployment. Copyright © 2020, 2016, 2011 Pearson Education, Inc. All Rights Reserved The Costs of Unemployment (4 of 4) Social Consequences The costs of unemployment are neither evenly distributed across the population nor easily quantified. The social consequences of the Depression of the 1930s 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 kept 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. Copyright © 2020, 2016, 2011 Pearson Education, Inc. All Rights Reserved Inflation and Deflation The Consumer Price Index consumer price index (CPI) A price index computed each month by the Bureau of Labor Statistics using a bundle that is meant to represent the “market basket” purchased monthly by the typical urban consumer. producer price indexes (PPIs) Measures of prices 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. Copyright © 2020, 2016, 2011 Pearson Education, Inc. All Rights Reserved Figure 22.1 The C P I Market Basket Source: The Bureau of Labor Statistics. The C P I market basket shows how a typical consumer divides his or her money among various goods and services. Most of a consumer’s money goes toward housing, transportation, and food and beverages. Copyright © 2020, 2016, 2011 Pearson Education, Inc. All Rights Reserved The Costs of Inflation (1 of 3) During inflations, most prices—including input prices like wages—tend to rise together, and input prices determine both the incomes of workers and the incomes of owners of capital and land. So inflation by itself does not necessarily reduce one’s purchasing power. Copyright © 2020, 2016, 2011 Pearson Education, Inc. All Rights Reserved The Costs of Inflation (2 of 3) Inflation May Change the Distribution of Income The effects of anticipated inflation on the distribution of income are likely to be fairly small, since people and institutions 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 difference between the interest rate on a loan and the inflation rate. Actual inflation that is higher (lower) than anticipated benefits debtors (creditors). Copyright © 2020, 2016, 2011 Pearson Education, Inc. All Rights Reserved The Costs of Inflation (3 of 3) Administrative Costs and Inefficiencies There may be costs associated even with anticipated inflation, such as the administrative cost associated with simply keeping up. Interest rates tend to rise with anticipated inflation. When interest rates are high, the opportunity costs of holding cash outside banks is high. Copyright © 2020, 2016, 2011 Pearson Education, Inc. All Rights Reserved What about Deflation? In 2017 most of the developed world experienced very little inflation, so some governments began to worry about deflation. If falling prices are unanticipated, borrowers will gain at the expense of lenders, and those on fixed pensions will gain at the expense of governments and firms paying those pensions. Copyright © 2020, 2016, 2011 Pearson Education, Inc. All Rights Reserved 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. Copyright © 2020, 2016, 2011 Pearson Education, Inc. All Rights Reserved Output and Productivity Growth Figure 22.2 Output per Worker Hour (Productivity), 1952 I– 2017 IV Productivity grew much faster in the 1950s and 1960s than it has since. Copyright © 2020, 2016, 2011 Pearson Education, Inc. All Rights Reserved Figure 22.3 Capital per Worker, 1952 I– 2017 IV Capital per worker grew until about 1980 and then leveled off somewhat. Copyright © 2020, 2016, 2011 Pearson Education, Inc. All Rights Reserved Review Terms and Concepts (1 of 2) consumer price index (CPI) output growth cyclical unemployment per-capita output discouraged-worker effect growth employed producer price indexes (PPIs) frictional unemployment productivity growth labor force real interest rate labor force participation structural rate unemployment natural rate of unemployed unemployment unemployment rate not in the labor force Copyright © 2020, 2016, 2011 Pearson Education, Inc. All Rights Reserved Review Terms and Concepts (2 of 2) Equations: labor force=employed+unemployed population=labor force+not in labor force unemployed unemployment rate = employed+unemployed labor force labor force participation rate = population Copyright © 2020, 2016, 2011 Pearson Education, Inc. All Rights Reserved