Facing Economic Challenges NEXT Chapter 13 Facing Economic

Facing Economic Challenges NEXT

Chapter 13: Facing Economic Challenges UNEMPLOYMENT • Unemployment has a variety of causes. Some level of unemployment is expected, even when an economy is healthy. • As the nation goes through business cycles, it faces the problems of unemployment and inflation. Persistent unemployment can lead to poverty. During periods of inflation, wages buy less. NEXT

The Labor Force and Unemployment • labor force = people over 16 who are working, looking for work (doesn’t include active military or institutionalized citizens) • Unemployment rate—percent of labor force that is jobless & looking for work • Bureau of Labor Statistics determines the unemployment rate – divides number of unemployed workers by total in civilian labor force – does not count discouraged who have stopped looking or underemployed • Underemployed—work part-time, want full-time or work below skill level NEXT

Measuring Unemployment Full Employment • • • Full employment—no unemployment caused by decreased economic activity Always some degree of unemployment: – people relocate; look for better job; can’t find appropriate job Unemployment rate of 4 -6% considered full employment in U. S. NEXT

4 Types of Unemployment Type 1: Frictional Unemployment • Frictional unemployment not a threat to economic stability. Includes: – Childrearing parents returning to work – new college graduates looking for first job – experienced workers who want to switch jobs NEXT

Types of Unemployment Type 2: Seasonal Unemployment • Demand for some jobs changes dramatically from season to season – construction work falls off in winter – migrant farm work drops off in winter; migrant families suffer NEXT

Types of Unemployment Type 3: Structural Unemployment • As businesses become more efficient, require fewer workers – new technologies replace workers or require them to retrain – new industries requiring specialized education do not employ unskilled labor – change in consumer demand can shift type of workers needed – offshore outsourcing sometimes leaves people out of work NEXT

Types of Unemployment Type 4: Cyclical Unemployment • Employers lay off workers during contractions/troughs of business cycle • During recession, hard to find new jobs since demand for labor drops • Unemployment period varies by type; average relatively short – over 1/3 of unemployed find work in 5 weeks or less NEXT

The Impact of Unemployment • Excessive, persistent unemployment is inefficient—wastes human resources • Promotes inequality since least experienced lose jobs first – also fewer jobs means fewer opportunities to advance • Discourages workers who lose faith in ability to find good job – underemployed lose motivation to do good work NEXT

Reviewing Key Concepts Explain the relationship between the terms in each of these pairs: • frictional unemployment and structural unemployment • seasonal unemployment and cyclical unemployment NEXT

Poverty and Income Distribution What Is Poverty? • Poverty—lack of income, resources to have minimum standard of living • No universal standard for poverty; varies from country to country • Poverty threshold—official minimum income to pay for basic needs; it is set by the govt NEXT

What Is Poverty? The Poverty Rate • Poverty rate—% of people in households below poverty threshold – based on population as a whole • Poverty does not hit all sectors of society equally. Most at risk: – Children, minorities; inner-city, rural, and single–mother families NEXT

Factors Affecting Poverty • Education—the higher the level of education, the higher the income • Discrimination against minorities, women – sometimes face wage discrimination, occupational segregation • Demographic trends —single-parent families have more economic problems • Job type – change from manufacturing to service jobs has resulted in lower wages for low-skilled workers NEXT

Income Distribution • Income distribution—how income is divided among people in a nation • Income inequality—unequal distribution of income; some always exists • Lorenz curve shows degree of income inequality in a nation; the more it dips away from diagonal line, the greater the inequality NEXT

Antipoverty Programs • Welfare—economic, social programs providing assistance to the needy – some criticized for wasting government funds, harming recipients – Food stamp program gives card, government deposits funds in account; card can be used only to buy food at grocery stores – Medicaid offers health care to low-income; funded by federal & state governments – Earned-income tax credit —refunds taxes deducted from paychecks – tax breaks, grants, job training, self-help NEXT

Antipoverty Programs Misc. Programs • Social Security (OASDI) program pays benefits to retirees, survivors, disabled (in NYS, recovering alcoholic, drug addict are considered disabled) • Medicare is govt health insurance for those receiving Social Security payments • Unemployment insurance helps laid-off workers while looking for job • Social Security, Medicare funded by payroll taxes; reduced poverty • Unemployment insurance paid mostly by taxes on employer NEXT

Antipoverty Programs Other Programs • Community Services Block Grants, job training, Empowerment Zones • In 1996, Republican-led Congress overhauled welfare programs federal welfare programs changed to welfare-to-work – workfare requires welfare recipients to do some work – Temporary Assistance for Needy Families (TANF) has 5 year limit except in NY state (Safety Net program) NEXT

Causes and Consequences of Inflation What Is Inflation and How Is It Measured? Inflation—defined two ways – sustained rise in the level of prices generally – sustained fall in the purchasing power of money NEXT

What Is Inflation and How Is It Measured? Consumer Price Index • Consumer price index (CPI) measures changes in prices of products • U. S. government surveys people to learn what they buy regularly – creates a “market basket” of about 400 typical products – each month researches current prices of these items NEXT

What Is Inflation and How Is It Measured? Inflation Rate • rate of change in prices over a set period of time Types of Inflation Moderate/Chronic inflation —between 1 -3% per year Creeping inflation — 4 -5% inflation over a period of time Hyperinflation—over 50% per month Deflation—decrease in general price level; happens rarely NEXT

What Causes Inflation? Demand-Pull Inflation • If total demand rises faster than production, it creates scarcity – producers need time to recognize demand, gear up for higher production – demand pushes up prices for available products NEXT

What Causes Inflation? Cost-Push Inflation • When production costs increase, producers make less profit – if demand is strong, may raise prices to maintain profits • Cost-push inflation may be due to higher price of materials, energy • Wages can be large part of production costs; wage-price spiral: – higher wages lead to higher costs, which lead to higher prices, which lead to higher wages and so on NEXT

What Causes Inflation? Quantity Theory • Too much money in circulation causes money’s value to decrease, and prices to feel higher NEXT

What Is the Impact of Inflation? Effect 1: Decreasing Value of the Dollar Effect 2: Increasing Interest Rates & Decreasing Real Returns on Savings NEXT

Reviewing Key Concepts Explain the relationship between the terms in each of these pairs: • consumer price index and producer price index • hyperinflation and deflation • demand-pull inflation and cost-push inflation NEXT

The Effects of Inflation in the 1970 s Background • In the 1970 s, the United States experienced the longest period of inflation in its history. By 1979, inflation had risen to 10 percent per year or higher. Prices of consumer goods rose dramatically. Those on fixed incomes were particularly affected. What’s the Issue • How did inflation affect people and businesses in the 1970 s? Thinking Economically • • • Name one example from each document that shows how inflation has a negative impact on the economy. Inflation is a general rise in price levels. Are the examples of price increases in documents B and C symptoms of inflation or isolated price increases? Compare the tone of documents A and C. Do economists care as much about inflation as consumers? Explain. NEXT