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N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
PowerPoint Slides prepared by:
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1
Principles of Economics, Ninth Edition
N. Gregory Mankiw
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Chapter 28
Unemployment
2
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
• Employed
–Those who worked
• Paid employees
• In their own business
• Unpaid workers in a family member’s
business
–Full-time and part-time workers
–Temporarily absent
• Vacation, illness, bad weather
3
Identifying Unemployment, Part 1
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Identifying Unemployment, Part 2
• Unemployed
–Those who were not employed
• Available for work
• Tried to find employment during the previous
four weeks
–Those waiting to be recalled to a job
• Laid off
4
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Identifying Unemployment, Part 3
• Not in the labor force
–Not employed and not unemployed
–Full-time students
–Homemakers
–Retirees
5
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Figure 1 The Breakdown of the Population in
January 2019
6
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Identifying Unemployment, Part 4
• Labor force
• Total number of workers, employed and
unemployed
= Number of employed + Number of unemployed
• Unemployment rate
– Percentage of labor force that is unemployed
Unemployment rate =
Number of unemployed
Labor force
× 100
7
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Identifying Unemployment, Part 5
• Labor-force participation rate
–Percentage of the total adult population that
is in the labor force
–Fraction of the population that has chosen
to participate in the labor market
Labor−force participation rate =
Labor force
Adult population
× 100
8
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Table 1 The Labor-Market Experiences of Various
Demographic Groups
9
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Identifying Unemployment, Part 6
• Labor-market experiences
–Women of prime working age (25 to 54
years old)
• Lower rates of labor-force participation than
men
–Once in the labor force
• Men and women – similar rates of
unemployment
10
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Identifying Unemployment, Part 7
• Labor-market experiences
–Blacks of prime working age
• Similar rates of labor-force participation as
prime-age whites
• Much higher rates of unemployment
–Teenagers
• Lower rates of labor-force participation
• Much higher rates of unemployment than
older workers
11
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Figure 2 Unemployment Rate Since 1960
12
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
• Natural rate of unemployment
–Normal rate of unemployment around
which the unemployment rate fluctuates
–4.6% in 2018 (close to the actual
unemployment rate of 3.9%)
• Cyclical unemployment
–Deviation of unemployment from its
natural rate
13
Identifying Unemployment, Part 8
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Labor-Force Participation of Men and Women
in the U.S. Economy, Part 1
• Women’s role in American society
–Changed dramatically over the past
century
–New technologies
• Reduced the amount of time required to
complete routine household tasks
–Improved birth control
• Reduced the number of children born to the
typical family
–Changing political and social attitudes
14
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Figure 3 Labor-Force Participation Rates for Men
and Women Since 1950
15
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Labor-Force Participation of Men and Women
in the U.S. Economy, Part 2
Data on labor-force participation
• 1950 – difference between participation
rates
–33% of women were working or looking
for work
–87% of men were working or looking for
work
16
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Labor-Force Participation of Men and Women
in the U.S. Economy, Part 3
• 2018 – difference between participation
rates
–57% of women were working or looking
for work
–69% of men were working or looking for
work
17
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Labor-Force Participation of Men and Women
in the U.S. Economy, Part 4
• Fall in men’s labor-force participation
–Young men stay in school longer
–Older men retire earlier and live longer
–With more women employed
• More fathers now stay at home to raise their
children
• Counted as being out of the labor force
–Full-time students, retirees
–Stay-at-home dads
18
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
• Official unemployment rate
–Useful
–Imperfect measure of joblessness
• Movements into and out of the labor force
–Common
–More than one-third of unemployed
• Recent entrants into the labor force
19
Identifying Unemployment, Part 9
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
• Unemployment
–Not all unemployment ends with the job
seeker finding a job
• Half of all spells of unemployment end when
the unemployed leaves the labor force
• Some of those who report being unemployed
–May not be trying hard to find a job
• Want to qualify for a government help
• Working but paid “under the table”
20
Identifying Unemployment, Part 10
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
• Some of those who are out of labor force
–May want to work: discouraged workers
• Discouraged workers
–Individuals who would like to work
–Have given up looking for a job
21
Identifying Unemployment, Part 11
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Table 2 Measures of Labor Underutilization
22
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
The Bureau of Labor Statistics defines:
• Marginally attached workers: currently are neither
working nor looking for work but indicate that they
want and are available for a job and have looked for
work sometime in the recent past.
• Discouraged workers: marginally attached workers
who have given a job-market related reason for not
currently looking for a job.
• Persons employed part-time for economic reasons:
want and are available for full-time work but have
had to settle for a part-time schedule.
23
Identifying Unemployment, Part 12
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
• How long are the unemployed without
work?
–Most spells of unemployment are short
–Most unemployment observed at any
given time is long-term
–Most people who become unemployed
• Will soon find jobs
24
Identifying Unemployment, Part 13
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
• How long are the unemployed without
work?
–Most spells of unemployment are short,
and most unemployment observed at any
given time is long-term
–Most of the economy’s unemployment
problem
• Attributable to the relatively few workers who
are jobless for long periods of time
25
Identifying Unemployment, Part 14
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Identifying Unemployment, Part 15
• Unemployment rate
–Never falls to zero
–Fluctuates around the natural rate of
unemployment
• Frictional unemployment
–It takes time for workers to search for the
jobs that best suit their tastes and skills
–Explain relatively short spells of
unemployment
26
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Identifying Unemployment, Part 16
• Structural unemployment
–Results because the number of jobs
available in some labor markets
• Is insufficient to provide a job for everyone
who wants one
–Explains longer spells of unemployment
–Results when wages are set above the
equilibrium
• Minimum-wage laws, unions, and efficiency
wages
27
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Job Search, Part 1
• Job search
–Process by which workers find appropriate
jobs given their tastes and skills
• Workers differ in their tastes and skills
• Jobs differ in their attributes
• Information about job candidates and job
vacancies is disseminated slowly
28
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
• Some frictional unemployment is
inevitable
–Changes in demand for labor among
different firms
–Changes in composition of demand
among industries or regions (sectoral
shifts)
–Changing patterns of international trade
• Workers need to move among industries
29
Job Search, Part 2
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
• Some frictional unemployment is
inevitable
–The economy is always changing
–From 2004 to 2014, employment
• Fell by 838,000 in construction and 2.1 million
in manufacturing
• Rose by 321,000 in mining, 629,000 in
computer systems design, 1.9 million in food
services, and 2.6 million in health care
30
Job Search, Part 3
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Public Policy and Job Search, Part 1
• Reduce time for unemployed to find jobs
–Reduce natural rate of unemployment
• Government programs – to facilitate job
search
–Government-run employment agencies
–Public training programs
31
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Public Policy and Job Search, Part 2
• Unemployment insurance
–Government program
–Partially protects workers’ incomes
• When they become unemployed
–Increases frictional unemployment
• Without intending to do so
–Qualify – only the unemployed who were
laid off because their previous employers
no longer needed their skills
32
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Public Policy and Job Search, Part 3
• Unemployment insurance
–50% of former wages for 26 weeks
–Reduces the hardship of unemployment
–Increases the amount of unemployment
• Unemployment benefits stop when a worker
takes a new job
• Unemployed
– Devote less effort to job search
– More likely to turn down unattractive job offers
– Less likely to seek guarantees of job security
33
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Minimum-Wage Laws, Part 1
• Structural unemployment
–Number of jobs – insufficient
• Minimum-wage laws
–Can cause unemployment
–Forces the wage to remain above the
equilibrium level
• Higher quantity of labor supplied
• Smaller quantity of labor demanded
• Surplus of labor = unemployment
34
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Figure 4 Unemployment from a Wage above the
Equilibrium Level
35
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
• Wages may be kept above equilibrium
level
–Minimum-wage laws
–Unions
–Efficiency wages
• If the wage is kept above the equilibrium
level
–Result: unemployment
36
Minimum-Wage Laws, Part 2
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Who Earns the Minimum Wage?, Part 1
• 2017, minimum wage = $7.25 per hour
• 80 million workers – paid at hourly rates
–About half of the labor force
–About 2.3% reported wages at or below
the prevailing federal minimum
• Thus, the minimum wage directly affects
about 1% of all workers
37
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Who Earns the Minimum Wage?, Part 2
• Minimum-wage workers
–Tend to be young
–Tend to be less educated
–Are more likely to be working part-time
–Over half of all workers paid at or below
the minimum wage were employed in
leisure and hospitality (earn tips)
38
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Who Earns the Minimum Wage?, Part 3
• The proportion of hourly paid workers
earning the prevailing federal minimum
wage or less
–Trended downward from 13.4% in 1979
to 2.3% in 2017
• Minimum wage increased from $5.15 per
hour in 2006 to $7.25 per hour in 2014
39
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Unions & Collective Bargaining, Part 1
• Union
–Worker association
–Bargains with employers over
• Wages, benefits, and working conditions
–Less than 11% of U.S. workers today
• About 33% in the 1940s and 1950s
–Type of cartel
40
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
• Collective bargaining
– Process by which unions and firms agree on
the terms of employment
• Strike
– Organized withdrawal of labor from a firm by
a union
– Reduces production, sales, and profit
• Union workers
– Earn 10-20% more than similar workers who
do not belong to unions
41
Unions & Collective Bargaining, Part 2
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
• Union – raises the wage above the
equilibrium level
–Higher quantity of labor supplied
–Smaller quantity of labor demanded
–Unemployment
–Better off: employed workers (insiders)
–Worse off: unemployed (outsiders)
• May stay unemployed
• Take jobs in firms that are not unionized
42
Unions & Collective Bargaining, Part 3
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
• Union – raises wage above
equilibrium
– Supply of labor in industries
not unionized will increase,
lower wages
• Workers in unions
– Reap the benefit of
collective bargaining
• Workers not in unions
– Bear some of the cost
“Gentlemen, nothing
stands in the way of a
final accord except that
management wants
profit maximization and
the union wants more
moola.”
43
Unions & Collective Bargaining, Part 4
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
• Are unions good or bad for the economy?
–Critics
• Unions – a type of cartel
• Allocation of labor
–Inefficient – high union wages reduce
employment in unionized firms below
the efficient level
–Inequitable – some workers benefit at
the expense of other workers
44
Unions & Collective Bargaining, Part 5
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
• Are unions good or bad for the economy?
–Advocates
• Unions – necessary antidote to the market
power of the firms that hire workers
–In the absence of a union, firms pay
lower wages and offer worse working
conditions
• Unions – help firms respond efficiently to
workers’ concerns
–Keep a happy and productive workforce
45
Unions & Collective Bargaining, Part 6
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Theory of Efficiency Wages, Part 1
• Efficiency wages
–Above-equilibrium wages paid by firms to
increase worker productivity
• Worker health; Worker turnover
• Worker quality; Worker effort
46
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Theory of Efficiency Wages, Part 2
• Worker health
–Better paid workers
• Eat a more nutritious diet
• Healthier and more productive
• Worker turnover
–Firm – can reduce turnover among its
workers
• By paying them a high wage
47
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Theory of Efficiency Wages, Part 3
• Worker quality
–Firm – pays a high wage
• Attracts a better pool of workers
• Increases the quality of its workforce
• Worker effort
–High wages – make workers more eager
to keep their jobs
• Give workers an incentive to put forward their
best effort
48
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Henry Ford and the Very Generous
$5-a-day Wage, Part 1
• Henry Ford, founder of Ford Motor
Company
–Introduced modern techniques of
production
–Built cars on assembly lines
• Unskilled workers were taught to perform the
same simple tasks over and over again
–Output: Model T Ford
49
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Henry Ford and the Very Generous
$5-a-day Wage, Part 2
• 1914, Ford: the $5 workday
–Twice the going wage
–Long lines of job seekers
• Number of workers willing to work > number
of workers Ford needed
• Ford’s high-wage policy: efficiency wage
50
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Henry Ford and the Very Generous
$5-a-day Wage, Part 3
• Ford’s efficiency wage
–Turnover fell
–Absenteeism fell
–Productivity rose
–Workers – so much more efficient
• Ford’s production costs were lower despite
higher wages
–Profitable for the firm
51
N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or
posted to a publicly accessible website, in whole or in part.
Henry Ford and the Very Generous
$5-a-day Wage, Part 4
• Ford’s efficiency wage
–High worker effort
–Closely linked to Ford’s use of the
assembly line
• Assembly line – highly interdependent
workers
52

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Introduction to Economics II Chapter 28 Unemployment (1).pdf

  • 1. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. PowerPoint Slides prepared by: V. Andreea CHIRITESCU Eastern Illinois University 1 Principles of Economics, Ninth Edition N. Gregory Mankiw
  • 2. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter 28 Unemployment 2
  • 3. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. • Employed –Those who worked • Paid employees • In their own business • Unpaid workers in a family member’s business –Full-time and part-time workers –Temporarily absent • Vacation, illness, bad weather 3 Identifying Unemployment, Part 1
  • 4. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Identifying Unemployment, Part 2 • Unemployed –Those who were not employed • Available for work • Tried to find employment during the previous four weeks –Those waiting to be recalled to a job • Laid off 4
  • 5. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Identifying Unemployment, Part 3 • Not in the labor force –Not employed and not unemployed –Full-time students –Homemakers –Retirees 5
  • 6. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 1 The Breakdown of the Population in January 2019 6
  • 7. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Identifying Unemployment, Part 4 • Labor force • Total number of workers, employed and unemployed = Number of employed + Number of unemployed • Unemployment rate – Percentage of labor force that is unemployed Unemployment rate = Number of unemployed Labor force × 100 7
  • 8. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Identifying Unemployment, Part 5 • Labor-force participation rate –Percentage of the total adult population that is in the labor force –Fraction of the population that has chosen to participate in the labor market Labor−force participation rate = Labor force Adult population × 100 8
  • 9. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Table 1 The Labor-Market Experiences of Various Demographic Groups 9
  • 10. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Identifying Unemployment, Part 6 • Labor-market experiences –Women of prime working age (25 to 54 years old) • Lower rates of labor-force participation than men –Once in the labor force • Men and women – similar rates of unemployment 10
  • 11. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Identifying Unemployment, Part 7 • Labor-market experiences –Blacks of prime working age • Similar rates of labor-force participation as prime-age whites • Much higher rates of unemployment –Teenagers • Lower rates of labor-force participation • Much higher rates of unemployment than older workers 11
  • 12. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 2 Unemployment Rate Since 1960 12
  • 13. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. • Natural rate of unemployment –Normal rate of unemployment around which the unemployment rate fluctuates –4.6% in 2018 (close to the actual unemployment rate of 3.9%) • Cyclical unemployment –Deviation of unemployment from its natural rate 13 Identifying Unemployment, Part 8
  • 14. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Labor-Force Participation of Men and Women in the U.S. Economy, Part 1 • Women’s role in American society –Changed dramatically over the past century –New technologies • Reduced the amount of time required to complete routine household tasks –Improved birth control • Reduced the number of children born to the typical family –Changing political and social attitudes 14
  • 15. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 3 Labor-Force Participation Rates for Men and Women Since 1950 15
  • 16. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Labor-Force Participation of Men and Women in the U.S. Economy, Part 2 Data on labor-force participation • 1950 – difference between participation rates –33% of women were working or looking for work –87% of men were working or looking for work 16
  • 17. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Labor-Force Participation of Men and Women in the U.S. Economy, Part 3 • 2018 – difference between participation rates –57% of women were working or looking for work –69% of men were working or looking for work 17
  • 18. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Labor-Force Participation of Men and Women in the U.S. Economy, Part 4 • Fall in men’s labor-force participation –Young men stay in school longer –Older men retire earlier and live longer –With more women employed • More fathers now stay at home to raise their children • Counted as being out of the labor force –Full-time students, retirees –Stay-at-home dads 18
  • 19. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. • Official unemployment rate –Useful –Imperfect measure of joblessness • Movements into and out of the labor force –Common –More than one-third of unemployed • Recent entrants into the labor force 19 Identifying Unemployment, Part 9
  • 20. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. • Unemployment –Not all unemployment ends with the job seeker finding a job • Half of all spells of unemployment end when the unemployed leaves the labor force • Some of those who report being unemployed –May not be trying hard to find a job • Want to qualify for a government help • Working but paid “under the table” 20 Identifying Unemployment, Part 10
  • 21. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. • Some of those who are out of labor force –May want to work: discouraged workers • Discouraged workers –Individuals who would like to work –Have given up looking for a job 21 Identifying Unemployment, Part 11
  • 22. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Table 2 Measures of Labor Underutilization 22
  • 23. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Bureau of Labor Statistics defines: • Marginally attached workers: currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past. • Discouraged workers: marginally attached workers who have given a job-market related reason for not currently looking for a job. • Persons employed part-time for economic reasons: want and are available for full-time work but have had to settle for a part-time schedule. 23 Identifying Unemployment, Part 12
  • 24. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. • How long are the unemployed without work? –Most spells of unemployment are short –Most unemployment observed at any given time is long-term –Most people who become unemployed • Will soon find jobs 24 Identifying Unemployment, Part 13
  • 25. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. • How long are the unemployed without work? –Most spells of unemployment are short, and most unemployment observed at any given time is long-term –Most of the economy’s unemployment problem • Attributable to the relatively few workers who are jobless for long periods of time 25 Identifying Unemployment, Part 14
  • 26. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Identifying Unemployment, Part 15 • Unemployment rate –Never falls to zero –Fluctuates around the natural rate of unemployment • Frictional unemployment –It takes time for workers to search for the jobs that best suit their tastes and skills –Explain relatively short spells of unemployment 26
  • 27. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Identifying Unemployment, Part 16 • Structural unemployment –Results because the number of jobs available in some labor markets • Is insufficient to provide a job for everyone who wants one –Explains longer spells of unemployment –Results when wages are set above the equilibrium • Minimum-wage laws, unions, and efficiency wages 27
  • 28. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Job Search, Part 1 • Job search –Process by which workers find appropriate jobs given their tastes and skills • Workers differ in their tastes and skills • Jobs differ in their attributes • Information about job candidates and job vacancies is disseminated slowly 28
  • 29. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. • Some frictional unemployment is inevitable –Changes in demand for labor among different firms –Changes in composition of demand among industries or regions (sectoral shifts) –Changing patterns of international trade • Workers need to move among industries 29 Job Search, Part 2
  • 30. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. • Some frictional unemployment is inevitable –The economy is always changing –From 2004 to 2014, employment • Fell by 838,000 in construction and 2.1 million in manufacturing • Rose by 321,000 in mining, 629,000 in computer systems design, 1.9 million in food services, and 2.6 million in health care 30 Job Search, Part 3
  • 31. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Public Policy and Job Search, Part 1 • Reduce time for unemployed to find jobs –Reduce natural rate of unemployment • Government programs – to facilitate job search –Government-run employment agencies –Public training programs 31
  • 32. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Public Policy and Job Search, Part 2 • Unemployment insurance –Government program –Partially protects workers’ incomes • When they become unemployed –Increases frictional unemployment • Without intending to do so –Qualify – only the unemployed who were laid off because their previous employers no longer needed their skills 32
  • 33. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Public Policy and Job Search, Part 3 • Unemployment insurance –50% of former wages for 26 weeks –Reduces the hardship of unemployment –Increases the amount of unemployment • Unemployment benefits stop when a worker takes a new job • Unemployed – Devote less effort to job search – More likely to turn down unattractive job offers – Less likely to seek guarantees of job security 33
  • 34. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Minimum-Wage Laws, Part 1 • Structural unemployment –Number of jobs – insufficient • Minimum-wage laws –Can cause unemployment –Forces the wage to remain above the equilibrium level • Higher quantity of labor supplied • Smaller quantity of labor demanded • Surplus of labor = unemployment 34
  • 35. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Figure 4 Unemployment from a Wage above the Equilibrium Level 35
  • 36. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. • Wages may be kept above equilibrium level –Minimum-wage laws –Unions –Efficiency wages • If the wage is kept above the equilibrium level –Result: unemployment 36 Minimum-Wage Laws, Part 2
  • 37. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Who Earns the Minimum Wage?, Part 1 • 2017, minimum wage = $7.25 per hour • 80 million workers – paid at hourly rates –About half of the labor force –About 2.3% reported wages at or below the prevailing federal minimum • Thus, the minimum wage directly affects about 1% of all workers 37
  • 38. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Who Earns the Minimum Wage?, Part 2 • Minimum-wage workers –Tend to be young –Tend to be less educated –Are more likely to be working part-time –Over half of all workers paid at or below the minimum wage were employed in leisure and hospitality (earn tips) 38
  • 39. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Who Earns the Minimum Wage?, Part 3 • The proportion of hourly paid workers earning the prevailing federal minimum wage or less –Trended downward from 13.4% in 1979 to 2.3% in 2017 • Minimum wage increased from $5.15 per hour in 2006 to $7.25 per hour in 2014 39
  • 40. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Unions & Collective Bargaining, Part 1 • Union –Worker association –Bargains with employers over • Wages, benefits, and working conditions –Less than 11% of U.S. workers today • About 33% in the 1940s and 1950s –Type of cartel 40
  • 41. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. • Collective bargaining – Process by which unions and firms agree on the terms of employment • Strike – Organized withdrawal of labor from a firm by a union – Reduces production, sales, and profit • Union workers – Earn 10-20% more than similar workers who do not belong to unions 41 Unions & Collective Bargaining, Part 2
  • 42. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. • Union – raises the wage above the equilibrium level –Higher quantity of labor supplied –Smaller quantity of labor demanded –Unemployment –Better off: employed workers (insiders) –Worse off: unemployed (outsiders) • May stay unemployed • Take jobs in firms that are not unionized 42 Unions & Collective Bargaining, Part 3
  • 43. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. • Union – raises wage above equilibrium – Supply of labor in industries not unionized will increase, lower wages • Workers in unions – Reap the benefit of collective bargaining • Workers not in unions – Bear some of the cost “Gentlemen, nothing stands in the way of a final accord except that management wants profit maximization and the union wants more moola.” 43 Unions & Collective Bargaining, Part 4
  • 44. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. • Are unions good or bad for the economy? –Critics • Unions – a type of cartel • Allocation of labor –Inefficient – high union wages reduce employment in unionized firms below the efficient level –Inequitable – some workers benefit at the expense of other workers 44 Unions & Collective Bargaining, Part 5
  • 45. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. • Are unions good or bad for the economy? –Advocates • Unions – necessary antidote to the market power of the firms that hire workers –In the absence of a union, firms pay lower wages and offer worse working conditions • Unions – help firms respond efficiently to workers’ concerns –Keep a happy and productive workforce 45 Unions & Collective Bargaining, Part 6
  • 46. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Theory of Efficiency Wages, Part 1 • Efficiency wages –Above-equilibrium wages paid by firms to increase worker productivity • Worker health; Worker turnover • Worker quality; Worker effort 46
  • 47. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Theory of Efficiency Wages, Part 2 • Worker health –Better paid workers • Eat a more nutritious diet • Healthier and more productive • Worker turnover –Firm – can reduce turnover among its workers • By paying them a high wage 47
  • 48. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Theory of Efficiency Wages, Part 3 • Worker quality –Firm – pays a high wage • Attracts a better pool of workers • Increases the quality of its workforce • Worker effort –High wages – make workers more eager to keep their jobs • Give workers an incentive to put forward their best effort 48
  • 49. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Henry Ford and the Very Generous $5-a-day Wage, Part 1 • Henry Ford, founder of Ford Motor Company –Introduced modern techniques of production –Built cars on assembly lines • Unskilled workers were taught to perform the same simple tasks over and over again –Output: Model T Ford 49
  • 50. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Henry Ford and the Very Generous $5-a-day Wage, Part 2 • 1914, Ford: the $5 workday –Twice the going wage –Long lines of job seekers • Number of workers willing to work > number of workers Ford needed • Ford’s high-wage policy: efficiency wage 50
  • 51. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Henry Ford and the Very Generous $5-a-day Wage, Part 3 • Ford’s efficiency wage –Turnover fell –Absenteeism fell –Productivity rose –Workers – so much more efficient • Ford’s production costs were lower despite higher wages –Profitable for the firm 51
  • 52. N. Gregory Mankiw, Principles of Economics, 9th Edition © 2021 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Henry Ford and the Very Generous $5-a-day Wage, Part 4 • Ford’s efficiency wage –High worker effort –Closely linked to Ford’s use of the assembly line • Assembly line – highly interdependent workers 52