# Unemployment Determining the Unemployment Rate n n n

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Unemployment

Determining the Unemployment Rate n n n A nation’s unemployment rate is an important indicator of the health of the economy. The Bureau of Labor Statistics polls a sample of the population to determine how many people are employed and unemployed. The unemployment rate is the percentage of the nation’s labor force that is unemployed. The unemployment rate is only a national average. It does not reflect regional economic trends. http: //www. google. com/publicdata? ds=usunemployment&met=unemploym ent_rate&tdim=true&q=current+unemployment+rates+in+the+us#met=u nemployment_rate&idim=state: ST 060000&tdim=true

Figure the unemployment rate n n n 1. In City A, the labor force is 5, 000 people, and 300 are unemployed. 2. In City B, the labor force is 25, 000 and 24, 500 people are employed. 3. In Mr. Slevcove’s class, 29 students have jobs, 1 is looking for jobs, and 6 don’t need and aren’t looking for a job. 4. In Mr. Russell’s class, 18 students have jobs, 12 are looking for jobs, and 7 don’t need and aren’t looking for a job. 5. At Kennedy high, there are 2, 000 students, 800 are unemployed, and 400 are discouraged workers because Cypress students are taking all the jobs.

Full Employment n n n Economists generally agree that in an economy that is working properly, an unemployment rate of around 4 to 6 percent is normal. Sometimes people are underemployed, that is working a job for which they are overqualified, or working part-time when they desire full-time work. Discouraged workers are people who want a job, but have given up looking for one. Full employment is the level of employment reached when there is no cyclical unemployment.

Types of Unemployment Frictional Unemployment n Occurs when people change jobs, take some time to find the right job after they finish their schooling, between jobs, or take time off from working for a variety of other reasons Structural Unemployment n Occurs when workers' skills do not match the jobs that are available. Technological advances are one cause of structural unemployment Seasonal Unemployment n Occurs when industries slow or shut down for a season or make seasonal shifts in their production schedules Cyclical Unemployment n Unemployment that rises during economic downturns and falls when the economy improves n http: //www. bls. gov/news. release/empsit. t 08. htm

Types of Unemployment Write whether each situation fits Cyclical, Structural, Seasonal, or Frictional. Then, support your answer with the key words in each statement n n n 1. Fifteen hundred workers in Georgia lost their jobs because textile companies have moved their factory operations outside the country. 2. People in a resort area that is busy in the summer and winter try to make enough money during these times of the year to tide them over during the fall and spring. 3. Lumber companies laid off hundreds of workers after reducing their projected output due to a slow-down in housing starts. 4. Hundreds of Mexican immigrants moved to California in the last year, but many remain unemployed because their English is not yet adequate for most jobs. 5. A Broadway musical show had its final run, leaving all the actors unemployed.

Types of Unemployment Write whether each situation fits Cyclical, Structural, Seasonal, or Frictional. Then, support your answer with the key words in each statement n n n 6. Hundreds of Texans lost jobs when a jeans manufacturer closed its border town factories and moved its operations to Mexico. 7. Many travel agents have left the field because their former customers now go to the internet for the lowest fares. 8. National unemployment rose to 6% as the economy slumped for the third straight month. 9. Workers at many nuclear power plants lost their jobs when power companies decided not to replace aging plants. 10. A typewriter company let go all its workers and shut down after one hundred years in business because computers made its product obsolete.

Inflation

The Effects of Rising Prices n n n Inflation is a general increase in prices. Purchasing power, the ability to purchase goods and services, is decreased by rising prices. Price level is the relative cost of goods and services in the entire economy at a given point in time.

Price Indexes A price index is a measurement that shows how the average price of a standard group of goods changes over time. n n The consumer price index (CPI) is computed each month by the Bureau of Labor Statistics. The CPI is determined by measuring the price of a standard group of goods meant to represent the typical “market basket” of an urban consumer. Changes in the CPI from month to month help economists measure the economy’s inflation rate. The inflation rate is the percentage change in price level over time.

Calculating Inflation n To determine the inflation rate from one year to the next, use the following steps.

Calculate Inflation (CPI Year 2 - CPI Year 1)/CPI Year 1 n n n 1. 2. 3. 1979 CPI 72. 6 1998 CPI 112 2004 CPI 134 1980 CPI 82. 4 1999 CPI 118 2005 CPI 139 http: //www. usinflationcalculator. com/inflat ion/current-inflation-rates/ http: //www. usinflationcalculator. com/

Causes of Inflation The Quantity Theory n The quantity theory of inflation states that too much money in the economy leads to inflation. n Adherents to this theory maintain that inflation can be tamed by increasing the money supply at the same rate that the economy is growing. The Cost-Push Theory n According to the costpush theory, inflation occurs when producers raise prices in order to meet increased costs. n Cost-push inflation can lead to a wage-price spiral — the process by which rising wages cause higher prices, and higher prices cause higher wages. The Demand-Pull Theory • The demand-pull theory states that inflation occurs when demand for goods and services exceeds existing supplies.

Effects of Inflation n High inflation is a major economic problem, especially when inflation rates change greatly from year to year. Purchasing Power n In an inflationary economy, a dollar loses value. It will not buy the same amount of goods that it did in years past. Interest Rates n When a bank's interest rate matches the inflation rate, savers break even. When a bank's interest rate is lower than the inflation rate, savers lose money. Income n If wage increases match the inflation rate, a worker's real income stays the same. If income is fixed income, or income that does not increase even when prices go up, the economic effects of inflation can be harmful.

Poverty n Section 3

Who Is Poor? The Poverty Threshold n The poverty threshold is an income level below which income is insufficient to support a family or household. The Poverty Rate n The poverty rate is the percentage of people in a particular group who live in households below the official poverty line. The Census Bureau collects data about how many families and households live in poverty.

Causes of Poverty Lack of Education n The median income of high-school dropouts is just above the poverty line for a family of four. Location n On average, people who live in the inner city earn less than people living outside the inner city. Shifts in Family Structure n Increased divorce rates result in more single-parent families and more children living in poverty. Economic Shifts n Workers without college-level skills have suffered from the ongoing decline of manufacturing, and the rise of service and high technology jobs. Racial and Gender Discrimination n Some inequality exists in wages between whites and minorities, and men and women.

Income Distribution in the United States Income Inequality n The Lorenz Curve illustrates income distribution. Income Gap n A 1999 study showed that the richest 2. 7 million Americans receive as much income after taxes as the poorest 100 million Americans. n Differences in skills, effort, and inheritances are key factors in understanding the income gap.

Government Policies Combating Poverty n n Employment Assistance n The minimum wage and federal and state job-training programs aim to provide people with more job options. Welfare Reform n Temporary Assistance for Needy Families (TANF) is a program which gives block grants to the states, allowing them to implement their own assistance programs. n Workfare programs require work in exchange for temporary assistance. The government spends billions of dollars on programs designed to reduce poverty.

Drawing the Lorenz Curve n n In Country X, the people in the economy made \$100, 000. The economy is made up of 5 people. The person with the lowest income made \$100, 000, 2 nd made \$800, 000, 3 rd made \$9, 100, 000, 4 th made \$18, 000, and the person with the highest income made \$72, 000. Draw the Lorenz Curve for this economy.