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Muzzi SG2.docx

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University of San Francisco

1 The Labor Market  3 measures o working age population  definition: anybody who is over the age of 16 and not institutionalized  mental hospitals  long term hospital stay  prison  nursing homes  military in service (when they come back they are counted)  doesn’t count as institutionalized: temporary hospital and school  senior citizens are counted (over 16) o labor force  definition: those who are employed or unemployed  discouraged workers: those who don’t fit in these 2 categories are (not part of the labor force)  housewife  retired  man who wins lottery o employed v. unemployed  employed: anyone working  unemployed: 1. actively looking for a job in the last 4 weeks and have not gotten one 2. (waiting to start work) went for a job interview & they want to hire but not till summer 3. laid off but waiting to be rehired in 3 months o govt calls 60,000 homes a year (census bureau)  3 statistical indicators o unemployment rate  # of unemployed/ labor force  # of unemployed/ employed + unemployed st  know: unemployment rate which is released 1 Friday of every month (on quizzes) –currently 7.9%  how can the rate go down when economy isn’t improving?  more discouraged workers, more retired o labor force participation rate  labor force/ working age population  see how unemployment rate changes due to the (monitors) # of discouraged workers  discourage workers this statistic   tells how many people are students, retired  high labor force/ working age pop. >> poor country (??)  US 50s to 2008 labor force participation rate was increasing  why? females joined workforce o employment to population ratio 2  # of employed/ working age pop. 1  under-utilized in society  disproves: 1. globalization kills jobs o has been growing since 2008 >> after globalization o # employed growing faster than WAP  #of jobs increase faster than population 2. technology will kill jobs o more tech in 2008 than 1950s * jobs ARE killed but many more are created  3 main categories of unemployment o frictional (seasonal)  momentarily unemployed from one job to another  the business you work goes out of business and you have to find a new one  good thing o structural  job replaced by tech, more efficient ways (international production, comparative advantage)  ex. CD player manufacturer replaced by MP3  no one wants your product  good thing >> progression, higher standard of living o cyclical  recession:  people lose jobs, economy slows (not at its potential, normal rate)  causes cyclical unemployment  full employment (natural rate of unemployment) o definition: level of employment when there is no recession (no cyclical) o has frictional and structural unemployment (unemployment is NOT 0) o 5-6% half frictional half structural *find current rate*  anything above this, we have cyclical unemployment  other causes of unemployment: o minimum wage *graph  govt causes unemployment  unskilled labor market  unions cause unemployment  skilled labor market in unions  market causes unemployment  ex. why employer pays secretary $25 instead of equilibrium of $20 o avoid search costs (hold current employee, loyalty) o increased production websites: bureau of labor statistics >> subject area >> employment >> unemployment first Friday of every month federal & state, CPI (all the way down, databases, top picks 1 one, check 1 box) opposite of inflation -disinflation. CPI inflation calc. bureau of economic analysis>> GDP>> current & real dollar>> add another 6 zeros to data percentage change in GDP >> negatives are recessions 3 o avoid retraining costs o unemployment insurance  FUTA takes out money from paycheck and puts into a pot  if you lose your job, you can request payments while unemployed  claim you’ve been looking for work in the past 4 weeks  6 months  Obama changed this to up to 2 years  contributes to unemployment rate o insurance can be more than working a part time job Growth  real GDP o value of all final goods & services that are produced in a formal market in a year/quarter o tells us whether econ is growing, how big it is o doesn’t tell us with the people are feeling the growth (well off)  ex. a country’s GDP grew 5% but their population grew 10%  US is #1  real GDP per capita o per person basis o real GDP/ population  US is about #10  Norway is #1 o gives better idea of how well off we are  labor productivity o real GDP/ # of hours worked  you get amount of $ per hour  US #1 at $50/ an hour o tells standard of living, best one  ex. 2 countries can have same GDP but one works 2x as much  highest labor productivity = best standard of living  rule of 70 o US grows 3% a year, 1% from pop & work growth o workers are 2% a year more productive o how long it takes for a country to double in size  ex. if china grows 10% a year when will it double?  70/10=7 years  convergence hypothesis o definition: developing countries are going to catch up to developed countries  what causes growth?  technology  why do developing countries grow faster than the developed ones?  they imitate the technologies that the developed countries already have  developed countries have to innovate to progress which is a lot harder than imitating  production function o Formula & *graph  ** y =f(K,L) 4  y= output/ income  f=function of  k=capital (assume its fixed)  l=labor o law of diminishing returns  graph* when you add labor you get smaller increments of output  labor increases in 10 all the way, output increase isn’t consistently increasing, its shrinking  not enough equipment for all the workers (fixed resources)  ex. giving us a comp for class…good! giving us another 3…marginally more helpful o capital vs. technology  technology isn’t affected (essential to economic growth)  need to award people for tech breakthroughs  ex. Russia  bought capital but didn’t award people to innovate tech  law of diminishing returns hit  their car was so technologically backwards it was worth a pair of jeans  ideas, techniques can be tech  ex. henry ford assembly line technique o physical capital vs. human capital  both require sacrifice and benefit production  investments-- sacrifice of today in hopes of more production in the future  physical  investment in infrastructure/objects that help us in the production of things  human  investment in training and education of the labor force o technology vs. human capital  human: how much we have read of the book  technology: book of knowledge in which we can be more productive  government policies to promote growth o labor  to increase 1. increase legal immigration 2. increase pop. (have babies) 3. giving out subsidies and tax cuts o physical capital  diminishing rate  to increase: 1. lower interest rates (cheaper to borrow, businesses will borrow more and buy more stuff) 2. subsidies- govt gives money to businesses when they by capital 3. reduce taxes when they buy capital o human capital  diminishing rat
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