Chapter 6 homework

• Questions 6, 10, 14, and 16

Chapter 7

Unemployment and Employment

Theory in Action…

• http://news.yahoo.com/s/afp/20070221/ts_alt_afp/usjapanautocompany_070221002126;_ylt=AmGijEzozUCCr8_ei2B8UdrlyREB Nissan Offers Voluntary Layoffs at Tennessee Plants Applied Topics: Derived demand, determinants of the demand for labor, production function

• The article examines Nissan's recent offer to workers. • Questions: • How is Nissan's offer to its workers for "buyouts" related to the

concept of derived demand? • How is it possible that the productivity of Nissan's workers has

increased but that the demand for labor at Nissan has decreased? (Hint: Is the production function the same for the new mix of vehicles to be produced this year as compared to 2006?)

Individuals Overlooked by the Unemployment Rate

• Discouraged workers Withdrawn from the labor force because of

poor job prospects, or to pursue alternative activities.

• Underemployed workers Work fewer hours than they would like, or

have jobs for which they are over-qualified.

• Illegal aliens Work, but try not to be detected.

Types of Unemployment

• Frictional Unemployment It takes time to match job openings with the

workers willing to take them

• Generally doesn’t last long, so few resources are directed at dealing with it.

• Most policy takes the form of providing information to employers and job seekers.

• Has declined with better job postings, internet, e-mail…

Types of Unemployment (cont’d)

• Seasonal Unemployment Periodic rise and fall of unemployment with

the seasons of the year

• Unemployment rates are adjusted for seasonal unemployment.

Types of Unemployment (cont’d)

• Structural Unemployment Workers lack jobs because of a permanent

mismatch of skills.

• Usually the result of a change in the structure of the economy.

• The government often tries to retrain structurally displaced workers.

Provide re-training programs

Types of Unemployment (cont’d)

• Cyclical Unemployment Broad downturn in economic activity.

• Government tries to fight with policies aimed at promoting economic growth and minimizing fluctuations in economic activity.

The Meaning of Full Employment

• It is unlikely that the unemployment rate will be zero percent in a market-based economy.

• Even after we account for seasonal unemployment, there will still be both frictional and structural unemployment.

The Meaning of Full Employment (cont’d)

• The economy reaches full employment when cyclical unemployment has been eliminated. Does not mean that everyone that wants a job

can find one!

The Meaning of Full Employment (cont’d)

• Economist believe that between 4% and 5% of the U.S. labor force is frictionally or structurally unemployed.

• Full employment unemployment rate lies between 4% and 5%. Where are we now??

• 4.7% in August 2006

Full Employment rates have changed

• During the 1970s and 80s, more women and baby boomers entered the labor market, causing more ___________unemployment.

frictional

• The decline of the U.S. auto industry in the 1970s and 80s lead to more _________ unemployment.

structural

• In the 1990s, fewer people entered the labor force (smaller population changes), reducing _________unemployment.

frictional

Why Unemployment is Not Always Bad

• Structural unemployment could be from technological advances Create new jobs based on the new technology.

• Creation of typewriter put copyists out of work; the creation of the computer put typists out of work

• Frictional unemployment may also serve a broader social purpose. Can lead to better employment matches, higher pay

for the worker and greater output for society. Look longer may find a better job