Chapter 5, 6, & 7

Unemployment, The Economy at Full Employment and Inflation

EXAMINING UNEMPLOYMENT
The Unemployed - Individuals who do not
currently have a job but are actively looking for work.
How Unemployment is designed and measured?

Labor Force - the total number of workers, both the employed and the unemployed.
Labor Force = employed + unemployed

Unemployment Rate - the percentage of the labor force that is unemployed.

Discouraged Workers - workers who left the labor force because they could not find jobs.

Categories of Unemployment
1. Employed includes those who worked as paid employees, worked in their own business, or worked as unpaid workers in a family members business. - both full time and part time workers are counted. - it also includes those who were not working but who had jobs from which they were temporarily absent because of for example, vacation, illness, or bad weather. 2. Unemployed it includes those who were not employed, were available for work and had tried to find employment during their previous 4 weeks. - it also includes those waiting to be recalled to a job from which they had been laid off. 3. Not in the Labor Force it includes those who fit neither of the first two categories such as full time student, homemaker or retirees.

TYPES OF UNEMPLOYED?
1. Seasonal Unemployment occurs when an occupation is not in demand at certain seasons like tourism, harvesting, etc. 2. Frictional Unemployment unemployment that results because it takes time for workers to search for jobs that best suit their tastes and skills. 3. Structural Unemployment unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one.

4. Cyclical Unemployment - it occurs when there is not enough demand for the labor cause by business cycle recession. 5. Hardcore Unemployment accounts for those unable to work due to mental or physical disabilities. 6. Technological Unemployment is caused by the replacement of workers by machines.

Unions and Collective Bargaining

Unions a worker association that bargains with employer over wages, benefits, and working conditions. Collective Bargaining the process by which unions and firms agree on the terms of employment. Strike the organized withdrawal of labor from a firm by a union.

THE THEORY OF EFFICIENCY WAGES

1. Worker Health a firm may find it more profitable to pay high wages and have a healthy, productive workers than to pay lower wages and have less healthy, less productive workers. 2. Workers Turnover the more the firm pays it workers rightfully, the less often its workers will choose to leave. 3. Worker Quality when a firm pays high wage, it attracts a better pool or workers to apply for its jobs and thereby increases the quality of its workforce. 4. Worker Effort high wages make workers more eager to keep their jobs and thereby, give workers an incentive to put forward at their best effort.

THE PRODUCTION FUNCTION

Production function - the relationship between the level of output of a good and the factors of production that are inputs to production. 1. Stock or Physical of Capital - the total of all machines, equipment, and structures that are used to produce goods and services. 2. Human Capital - human effort, including both physical and mental effort, used to produce goods and services. 3. Natural Resources the inputs into the production of goods and services that are provided by nature such as land, rivers, and mineral deposits.

INFLATION
Inflation is a rise in the general level of prices of
goods and services in an economy over a period of time.

Inflation Rate - the percentage rate of change in the price level. Inflation Tax the revenue that government raises by creating money. Deflation - negative inflation or falling prices of goods and services.

THE COSTS OF INFLATION

1. Shoe Leather Costs - costs of inflation that arise from trying to reduce holdings of cash. 2. Menu Costs the costs associated with changing prices and printing new price lists when there is inflation.

IMPACT OF INFLATION
1. Cost-Push Inflation - High inflation can prompt
employees to demand rapid wage increases, to keep up with consumer prices. 2. Hoarding - People buy durable and/or nonperishable commodities and other goods as stores of wealth, to avoid the losses expected from the declining purchasing power of money, creating shortages of the hoarded goods. 3. Social Unrest and Revolts - Inflation can lead to massive demonstrations and revolutions.