1. Monitoring Job
and price Level
Microeconomic Foundation
Alaleh Mani
2011

2. Employment terms
Populati
on
Olds, Working
Kids, Age
people Populati
in jail, on
hospital, Not
Labor
institutes Others willing to
Force
work
Goto Retired
Unemplo Employe School populati
yedDiscoura d people on
Full effort ge
searchin people Part-time Full-time
g in 4 in
weeks recessio
Waiting n
list
Start a Return
new job back

3. Labor Market Indicator
The unemployment rate=Unemployement
Labor Force
The labor force participant rate=LaborForce
working
age
The employment to Population
rate=Employment
working age

4. 1.Short work Hour
2.Higher Productivity
3.White Collar job
4.Free time due to
technology
1.Men stay at school
more
Trends
2.Retired early
Women Participate
more Men Participate
less
Downward
Same trend but below is
more fluctuated
Coincide and
Opposite

5. Aggregate Hours
 Productivity or GDP does not measured by number of worker in
different full or part time jobs, whereas it is calculated by total
hours of work full or part in a year which is known as AGGREGATE
HOURE.
 Aggregate hour has increasing trend with a lag relative to
employment rate trend
 Average hour per worker is decreasing due to population of
working age
 The trend fluctuation caused by Business cycle

6. Real wage rate
An hour work purchase how much goods and services in dollars= real wage
rate=economic variable = good measure for labor rewarding  growing trend ≈
GDP growth ≈ productivity growth
3 different calculation:
1.Department of labor: wage of private manufacturing nonsupervisory worker
(lowest)
2.National income and product accounts:
Wage and salary in an hour (broader than first)
3.wages, salary and supplementary(fringe benefits: pension fund, health
insurance) (highest)

7. Unemployment , Full Young
and
employment
5 to 14
black
people
weeks Unemploye
d 50% of
unemploym
Full effort Discourage
searching people in
ent are job
Teenagers are reentrance in 4 weeks recession loser with
often unemployed wild
because: Waiting list reentrance fluctuation
1. The leave job reentrance
Job
more frequently Job loser
leaver
to find right one
2. Part time jobs entrance Reentrance
are temporary
for teenagers
Smallest
3. The are student
constant
and out of labor
number of
group
unemploym
ent

8. Unemployment Types
 Frictional:
Normally people enter and leave the job spend time to search for a job that
suit them best ; exp: baby booming / unemployment insurance and benefit
Normally some job created or destructed  incur cost to advertize to absorb
best employee
different between Rate of entrance and leaving job for people and different
between rate of creating and vanishing job = number of frictional jobless
 Structural:
technology and competition need skilled worker  unskilled people leave to
get training or join the discourage people  painful for old
(Schweser typical question )
 Cyclical:
The employment situation hike and fall by business cycle coincide but contrary
to expansion and recession and downsize( schweser typical question)
Full employment=frictional and structural unemployment
Unemployment rate at full employment= natural unemployment ate

9. Potential GDP
REAL GDP peak occurs at trough of Unemployment
rate
Fluctuate around real GDP
GDP at full employment with no cycle
Fluctuate around real uneployment

10. CPI=Consumer Price Index=Price level
To measure cost of living and value of
money
The Price is paid by Urban Consumer for Fix
basket

11. Constructing CPI in 3 stage
 Stage 1.
Select the CPI basket for all
urban(CPI-U)which is broader wage
earner (CPI-W)

12.  Stage2.
Conducting the monthly price survey
BLS (Bureau of Labor Statistics) conduct survey for
80000 items in 8 group in 30 cities
 Stage3
Calculating the CPI:
CCC=Cost of Current CPI basket=ΣPrice*Quantity
CBC=Cost of Base-period CPI basket
CPI=CCC*100/CBC Point NOT PERCENTAGE(CFA
2009)
CPI in base year=100 Point

13. Measure Inflation
 Inflation is the annual change of price
level
Inflation rate=CPI this year-CPI last year *100
a percentage
CPI last year *100

14. CPI biased
 New good bias:
New technology introduce new goods in basket that
did not exist in base basket
 Quality change bias:
quality rise so payment for quality rise that take
mistake by inflation and exclude from calculation
 Commodity substitution bias:
Some commodity vanish some other substitute
 Outlet substitution bias:
Outlet substitute convenient store to cut the cost
and use the discount price

15. Consequence of CPI bias
 CPI bias OVERVALUE the inflation by almost
1.1 percentage point a year (exam 2009)
 Distort private contract:
Wage contract based on biased CPI make
worker earns more than real income
 Increase government outlay (spend money)
To reduce the Bias the survey and calculation
should be more frequent