ECO 304L Chapter Notes - Chapter Unit 3: Ch 9-12, 16: Unemployment, Business Cycle

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greenwalrus59

7 Oct 2017

School

UT-Austin

Department

Economics

Course

ECO 304L

Professor

M O S T A S H A R I, S H A L A H

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U(cid:374)e(cid:373)ploy(cid:373)e(cid:374)t rate as a (cid:862)laggi(cid:374)g i(cid:374)di(cid:272)ator(cid:863) of the (cid:271)usi(cid:374)ess (cid:272)y(cid:272)le: note that cyclical unemployment (and the overall unemployment rate) is a. That is, cyclical unemployment begins to rise after production begins to fall in a recession. This happens because firms may not immediately lay off workers when their sales decline. They often wait to cut employment until a recession becomes more serious. Similarly, firms will not immediately re-hire workers when the economy begins to recover. They may wait until they are confident that economic conditions will improve for a sustained period: this phenomenon can be explained, at least in part, by substantial hiring and training costs of workers. Firms are reluctant to lay off workers that they may need in the near future. The unemployment rate continued to rise after the recession was officially over, and, even though statistics show that the economy was growing through. 1992, the general perception at the time was one of poor economic performance.

Related Questions

Topic: Why is unemployment so high in Europe? Briefly discuss.

Optional reading: You can use any Web browser to search for the words âEuropean unemployment.â Just by scanning the headlines, see how many possible explanations you can list. Why Is Unemployment So High in Europe? Between World War II and the mid-1970s, unemployment in Western Europe was low. From 1960 to 1974, for example, the unemployment rate in France never got as high as 4 percent. The worldwide recession of the mid-1970s, however, jacked up unemployment rates. But unemployment continued to climb in Continental Europe long after the recession ended, topping 10 percent during the 1990s, and was still 8 percent to 9 percent in 2007. Some observers claim that the natural rate of unemployment has increased in these countries. Economists have borrowed a term from physics, hysteresis (pronounced his-ter-eÃ©-sis), to argue that the natural rate of unemployment depends in part on the recent history of unemployment. The longer the actual unemployment rate remains above what had been the natural rate, the more the natural rate itself increases. For example, those unemployed can lose valuable job skills, such as the computer programmer who loses touch with the latest developments. As weeks of unemployment stretch into months and years, the shock and stigma may diminish, so the work ethic weakens. Whatâs more, some European countries offer generous unemployment benefits indefinitely, reducing the hardship of unemployment. Some Europeans have collected unemployment benefits for more than a decade. No consensus exists regarding the validity of hysteresis. The theory seems to be less relevant in the United States and Great Britain, where unemployment fell from 10 percent in 1982 to 4.5 and 5.5, respectively, in 2007. An alternative explanation for high unemployment in Continental Europe is that legislation introduced there in the 1970s made it more difficult to lay off workers. In most European countries, job dismissals must be approved by worker councils, which consider such factors as the workerâs health, marital status, and number of dependents. Severance pay has also become mandatory and can amount to a yearâs pay or more. With layoffs difficult and costly, hiring became almost an irreversible decision for the employer, so firms have become reluctant to add workers, particularly untested workers with little experience. Also, high minimum wages throughout Europe, high payroll taxes, and an expanded list of worker rights have increased labor costs. For example, in Sweden, women are guaranteed a yearâs paid leave on having a child and the right to work no more than six hours a day until the child reaches grade school. Swedish workers are also guaranteed at least five weeks of vacation a year; French workers get at least six weeks (Americans have no minimum vacation guarantees). Regardless of the explanation, the result is high unemployment in Continental Europe, particularly among young workers. As noted in an earlier chapter, 60 percent of those unemployed in Germany in 2006 had been out of work more than a year, versus less than10 percent of those unemployed in the United States. Few private sector jobs have been created there since 1980. If Continental Europe had the same unemployment rate and the same labor participation rate as the United States, about 30 million more people there would be working there.

ECO 304L Chapter Notes - Chapter Unit 3: Ch 9-12, 16: Unemployment, Business Cycle

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