Download Chapter 13 Unemployment and Inflation

Unemployment/Inflation
Chapter 13
Breakdown of Total U.S. Population by
Employment Status
Total Population
Persons under 16
Persons in the armed forces
Persons institutionalized
Non-institutional adult
civilian population
Not in labor force
Civilian labor force
Employed
Unemployed
Civilian Labor Force: People 16 yrs or older
either employed or actively seeking employment
If Under 16, your rights depend. For
example:
If you are under 16 you are only allowed to:
•deliver newspapers to customers;
•babysit on a casual basis;
•work as an actor or performer in movies, TV, radio, or theater;
•work as a homeworker gathering evergreens and making
evergreen wreaths; and
•work for a business owned entirely by your parents as long as it
is not in mining, manufacturing, or any of the 17 hazardous
occupations.
There are different rules for children under age 14 working in
agriculture. States also have rules, and employers must follow
both.
One Economic Indicator

Economists measure how healthy the economy is
at any given time by counting the number of people
who are unemployed.
Unemployment Rate
Percentage of civilian labor force that is
unemployed
 Individuals who are actively looking for a
job but work less than 1 hour per week
for pay or profit
 Does not include people who are
underemployed, working part time, or have
given up the job search
 Government takes monthly surveys to
measure the unemployment rate

Full Employment
Even in an economy that is working properly,
economists expect some unemployment.
 An unemployment rate of 4% or lower is
considered full employment.
 However, some people with jobs could be
underemployed (they work part-time but
want full)
 Idaho unemployment rate: Oct. 2014: 4.1%
March 2014: 5.2%
 U.S. unemployment rate: Oct. 2014: 5.8%
March 2014: 6.7%

Unemployment Insurance: Who Pays?
Way of tracking unemployment in U.S.
 Not public assistance: Paid for by employers
through state and federal taxes. These taxes
fluctuate depending on how much former
workers collect.
 Insurance is also dependent on type of work
done (contractor vs. employee)

Filing for Unemployment in Idaho
Automated system
 Two qualifications:

1. Personal eligibility
◦ Lost job through no fault of your own
◦ Physically able and willing to accept work
2. Monetary requirements
◦ May not qualify if self employed
◦ Calculated by the first 4 of the last 5 quarters
worked before claim

EX: $28,000 per year would make one eligible
for $275/week for 26 weeks
Filing for Unemployment: Some Rules
Must contact employers in your labor
market (2 per week at least), and keep
records of contact.
 You cannot refuse work
 You must report all earnings for the week
you worked
 Report holiday, overtime, bonus, severance,
and vacation pay
 Stop reporting earnings if you get full time
 Failure to follow these and others could lead
to fraud.

Types of Unemployment
 Frictional
 Seasonal
 Technological
 Structural
 Cyclical
Frictional Unemployment

People take time to find a
job
◦ Get laid off, take time to find
right job
◦ Graduate from high school
or college
◦ Looking for a new job
◦ Left job to take care of a
parent, coming back
Seasonal Unemployment
Unemployment that
occurs as a result of
harvest schedules or
vacations
 Industries slow down
or shut down due to
cold weather

◦ Summer Job –
Boondocks
◦ Winter Jobs - Bogus
Technological Unemployment

Automation makes
some workers
skills obsolete
Structural Unemployment

Worker’s skills do not
match the jobs that are
available
◦ Need skills to success
◦ Move from farming to
manufacturing
◦ Manufacturing to service
◦ Takes time to retrain
Cyclical Unemployment

In economic downturns
people are laid off
because there is a
surplus of inventories
and no demand

Unemployment can
cause uncertainly,
political instability, and
social problems
Inflation
What is Inflation?
Another important
economic indicator
 An increase in the
price level, or the
average level of
prices
 The same amount of
money buys less

Current Inflation 1.98%
(Apr. 2012)
How Do We Measure Inflation?
Economists use price indexes
 If price indexes increase from year to year:
inflation
1. CPI (Consumer Price Index): most
commonly used inflation measure

◦ BLS measures the price of a standard group of
goods meant to represent the “market basket”
of a typical urban customer
◦ Watching from year to year helps determine the
inflation rate (% change in prices over time)
2. PPI (Producer Price Index): measures of the
cost of a basket of goods bought by firms.
Three Causes of Inflation
1. Quantity theory: Too much money in the
economy chasing too few goods
2. Demand Pull (Demand side): Demand for
goods and services exceeds supply




Growing economy: people spending more money
Expectation of Inflation: Buy now before inflation hits
Strong brand: Good Marketing
Technological Innovations: I-Phone
3. Cost Push (Supply-side): Producers raise prices
to meet increased costs for labor/raw materials.
Happens with inelastic products.
◦ Monopoly/Oligopoly: OPEC and Oil/Gasoline
◦ Wage Inflation: An increase in wage demand forces firms to
raise prices to cover cost of production.
◦ Natural Disasters/ Lack of Resources: Driven by Scarcity. Ex:
Japanese earthquake/auto parts, Hurricane Katrina/Gas prices
◦ Government Regulation and Taxation: Government regulations
can reduce the supply of certain products. Shift in Exchange
Affects of Inflation
Reduces purchasing power
 People on fixed incomes, such as social
security, unemployment, and investment
proceeds (CD’s, preferred stock dividends)
are negatively effected.
 The greater the inflation rate, interest
earned on savings loses value – can buy less
with the money you have
 If you have a long-term contract - eats up
profits over time.

Deflation
A decline in the price level, or average level of
prices
 A downward change in the CPI indicates
deflation
 PROBLEMS:

◦
◦
◦
When prices do not fall at the same time, some firms go
out of business or lay off workers
People stop spending; waiting for prices to fall
Wages as well as prices have to fall
Hyperinflation
Inflation that exceeds 50% per month
 The value of money decreases quickly
 CAUSES: Government needs to pay for
government services but does not want to
raise taxes, so they print more money
 People immediately convert money to goods
and services because they are worth more

Examples of Hyperinflation
U.S. (1918): 20.4% - booming economy after WWI
 Germany (1921-23): 29,500% monthly inflation. 4.2 trillion
Marks = 1 USD. Economic crisis helped rise Hitler to power
 Greece (1941-44): 13,800% peak in 1944, with daily
inflation at 20.9%
 Hungary (1945-46): 207% daily inflation. 100 Quintillion
denominations were used
 Yugoslavia (1989 -94): 313,000,000% monthly and 64.6%
daily inflation.
 Zimbabwe (2000 – 09): 516 quintillion % inflation per
month.
