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Karlstad Universitet
Makroekonomi VT2011
Föreläsning 2: Arbetsmarknaden
Per-Åke Andersson
031-786 1353
[email protected]
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Macroeconomics: Principles, Applications, and Tools
O’Sullivan, Sheffrin, Perez
6/e.
CHAPTER 5
Measuring a Nation’s
Production and Income
6.1
EXAMINING UNEMPLOYMENT
How Is Unemployment Defined 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.
unemployed
unemployment rate =
 100
labor force
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CHAPTER 5
Measuring a Nation’s
Production and Income
6.1
EXAMINING UNEMPLOYMENT
How Is Unemployment Defined and Measured?
● labor force participation rate
The percentage of the population
over 16 years of age that is in the
labor force.
labor force
labor force participation rate =
 100
population 16 years and older
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Macroeconomics: Principles, Applications, and Tools
O’Sullivan, Sheffrin, Perez
6/e.
CHAPTER 5
Measuring a Nation’s
Production and Income
6.1
EXAMINING UNEMPLOYMENT
How Is Unemployment Defined and Measured?
 FIGURE 6.1
Unemployment Data, May 2008
Approximately 66 percent of the civilian population is in the labor
force. The unemployment rate in May 2008 was 5.5 percent.
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6.1
EXAMINING UNEMPLOYMENT
How Is Unemployment Defined and Measured?
 FIGURE 6.2
Unemployment Rates in
Developed Countries
Among the developed countries,
unemployment rates vary substantially.
Macroeconomics: Principles, Applications, and Tools
O’Sullivan, Sheffrin, Perez
6/e.
CHAPTER 5
Measuring a Nation’s
Production and Income
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6/e.
CHAPTER 5
Measuring a Nation’s
Production and Income
6.1
EXAMINING UNEMPLOYMENT
Alternative Measures of Unemployment and Why They Are Important
● discouraged workers
Workers who left the labor force
because they could not find jobs.
FIGURE 6.3
Alternative Measures of
Unemployment, May 2008
Including discouraged workers,
marginally attached workers,
and individuals working part
time for economic reasons
substantially increases
measured unemployment in
2008 from 8.49 million to 15.14
million.
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The employment ratio
Number of employed in the 15-64 age-group
80.0
77.5
75.0
72.5
70.0
67.5
65.0
2005
2006
2007
2009
2008
Year
Fetched: 09/16/2010
Sour ce: Eur ostat
Sweden
EU-15
Switzerland
Unemployment -international comparison
Share of the population, 15-74 years, 2009
Spain
Latvia
Estonia
Lithuania
Slovakia
Ireland
Hungary
Portugal
Franc e
Greec e
United States
Croatia
EU-27
Sweden
Poland
Finland
Belgium
Italy
Great Britain
Germany
M alta
Romania
Bulgaria
Czec h Republic
Denmark
Slovenia
Luxembourg
Cyprus
Japan
Austria
Netherlands
Norway
0
Sour ce: Eur ostat
5
10
15
20
Perc ent
Fetched: 09/16/2010
Youth unemployment
Perc entage unemployed in the age-group,15-24 years, 2009
Spain
Latvia
Lithuania
Estonia
Slovakia
Hungary
Greec e
Italy
Sweden
Croatia
Ireland
Franc e
Belgium
Finland
Romania
Poland
Portugal
EU-27
Great Britain
United States
Luxembourg
Czec h Republic
Bulgaria
M alta
Cyprus
Slovenia
Denmark
Germany
Austria
Japan
Norway
Netherlands
0
10
20
30
Sour ce: Eur ostat
OBS: impor tant to note is that statistics fr om Eur ostat continuously is r evised and that minor adjustments ar e made by
Eur ostat in or der to incr ease inter national compar ability of the statistics.
40
Perc ent
Fetched: 09/16/2010
Changes in employment in Sweden 2006-2010
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Macroeconomics: Principles, Applications, and Tools
O’Sullivan, Sheffrin, Perez
6/e.
CHAPTER 5
Measuring a Nation’s
Production and Income
APP LI CAT I O N
2
MORE DISABILITY, LESS UNEMPLOYMENT?
APPLYING THE CONCEPTS #2: Does more liberal
disability insurance decrease measured unemployment?
The federal Disability Insurance program provides income to nonelderly
workers who are deemed unable to engage in substantial employment.
Economists David Autor and Mark Duggan studied the impact of this
program on labor force participation.
They found that the changes in the rules administering the program, the
increased generosity of the benefits of the program for low-skilled
workers, and the increase in the value of health care services all
contributed to an increase in participation in this program.
Since these workers, a portion of whom would have been unemployed,
were no longer in the labor force, the economists estimated that the effect
of the Disability Insurance program was to lower the measured
unemployment rate by 0.5 percent, a very large effect.
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6.1
EXAMINING UNEMPLOYMENT
Who Are the Unemployed?
FIGURE 6.4
Selected U.S. Unemployment
Statistics, Unemployment Rates for
May 2008
The incidence of unemployment
differs sharply among demographic
groups.
Macroeconomics: Principles, Applications, and Tools
O’Sullivan, Sheffrin, Perez
6/e.
CHAPTER 5
Measuring a Nation’s
Production and Income
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Macroeconomics: Principles, Applications, and Tools
O’Sullivan, Sheffrin, Perez
6/e.
CHAPTER 5
Measuring a Nation’s
Production and Income
6.2
CATEGORIES OF UNEMPLOYMENT
Types of Unemployment: Cyclical, Frictional, and Structural
● cyclical unemployment
Unemployment that occurs during
fluctuations in real GDP.
● frictional unemployment
Unemployment that occurs with the
normal workings of the economy, such
as workers taking time to search for
suitable jobs and firms taking time to
search for qualified employees.
● structural unemployment
Unemployment that occurs when
there is a mismatch of skills and jobs.
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CHAPTER 5
Measuring a Nation’s
Production and Income
6.2
CATEGORIES OF UNEMPLOYMENT
The Natural Rate of Unemployment
● natural rate of unemployment
The level of unemployment at which
there is no cyclical unemployment. It
consists of only frictional and
structural unemployment.
● full employment
The level of unemployment that
occurs when the unemployment rate
is at the natural rate.
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CHAPTER 5
Measuring a Nation’s
Production and Income
APP LI CAT I O N
3
FINDING THE OPTIMAL LEVEL OF UNEMPLOYMENT
INSURANCE
APPLYING THE CONCEPTS #3: What are the costs of either
too high or too low levels of unemployment insurance?
How do we balance the benefits and costs of unemployment insurance?
Suppose the government provided all unemployed workers a payment equal to their
previous salary as long as they remained unemployed:
• This would prevent unemployed workers from suffering any financial hardship.
• Very few workers would return to work if the government were paying them their
full salaries.
• Result: excessive unemployment.
States recognize this and replace only a fraction of a worker’s prior salary—typically
about 40 percent.
Economist Jonathan Gruber of MIT attempted to calculate the optimal amount of
unemployment insurance.
• Result: Looking at both the costs and the benefits of unemployment insurance,
Gruber found that the optimal level of insurance was probably somewhat lower
(closer to 30 percent) than the current 40 percent provided by the states.
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Macroeconomics: Principles, Applications, and Tools
CHAPTER 7
The Economy at
Full Employment
7.2
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.
• stock of capital
The total of all machines, equipment, and buildings
in an entire economy.
• labor
Human effort, including both physical and mental
effort, used to produce goods and services.
When there are only two factors of production,
capital and labor, the production function is written
as follows:
Y = F(K,L)
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Macroeconomics: Principles, Applications, and Tools
CHAPTER 7
The Economy at
Full Employment
7.2
THE PRODUCTION FUNCTION
 FIGURE 7.1
The Relationship between
Labor and Output with Fixed
Capital
With capital fixed, output
increases with labor input,
but at a decreasing rate.
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Macroeconomics: Principles, Applications, and Tools
CHAPTER 7
The Economy at
Full Employment
7.2
THE PRODUCTION FUNCTION
PRINCIPLE OF DIMINISHING RETURNS
Suppose output is produced with two or more inputs, and we increase one
input while holding the other input or inputs fixed. Beyond some point—called
the point of diminishing returns—output will increase at a decreasing rate.
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Macroeconomics: Principles, Applications, and Tools
CHAPTER 7
The Economy at
Full Employment
7.2
THE PRODUCTION FUNCTION
 FIGURE 7.2
An Increase in the Stock of
Capital
When the capital increases
from K1 to K2, the production
function shifts up.
At any level of labor input,
the level of output increases.
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Macroeconomics: Principles, Applications, and Tools
CHAPTER 7
The Economy at
Full Employment
7.3
WAGES AND THE DEMAND AND
SUPPLY FOR LABOR
 FIGURE 7.3
The Demand and Supply of Labor
Together, the demand and supply for labor determine the level of employment and the real wage.
• real wage
The wage rate paid to employees adjusted for changes
in the price level.
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Macroeconomics: Principles, Applications, and Tools
CHAPTER 7
The Economy at
Full Employment
7.3
WAGES AND THE DEMAND AND
SUPPLY FOR LABOR
Labor Market Equilibrium
Panel C of Figure 7.3 puts the demand and
supply curves together.
At a wage of $15 per hour, the amount of
labor firms want to hire—7,500 workers—will
be equal to the number of people who want to
work—7,500 workers.
This is the labor market equilibrium: The
quantity demanded for labor equals the
quantity supplied.
Together, the demand and supply curves
determine the level of employment in the
economy and the level of real wages.
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Macroeconomics: Principles, Applications, and Tools
CHAPTER 7
The Economy at
Full Employment
7.3
WAGES AND THE DEMAND AND
SUPPLY FOR LABOR
Changes in Demand and Supply
MARGINAL PRINCIPLE
Increase the level of an activity as long as its marginal benefit exceeds its
marginal cost. Choose the level at which the marginal benefit equals the
marginal cost.
 FIGURE 7.4
Shifts in Labor
Demand and Supply
Shifts to demand and
supply will change
both real wages and
employment.
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Macroeconomics: Principles, Applications, and Tools
CHAPTER 7
The Economy at
Full Employment
APPLICATION
1
IMMIGRATION AFFECTS BOTH THE DEMAND AND
THE SUPPLY FOR LABOR
APPLYING THE CONCEPTS #1: Although we normally think
that increased immigration will reduce wages,
what factors could cause it to raise wages?
A recent study by Gianmarco Ottaviano of the
University of Bologna and Giovanni Peri of the
University of California, Davis, estimated that
during the 1990s immigration, on average, increased
the average wage of U.S.-born workers by 2.7 percent.
They took into account that increased immigration led to increases in the
supply of labor and additional investment, and as a result, both the demand
and the supply for labor shifted, with the shift in demand slightly outpacing
the shift in supply.
When they looked more closely at wages, they found the wages of highschool dropouts fell, while wages of workers with at least a high-school
education increased. The reason for this difference was that high-school
dropouts compete most directly with the new immigrants, whereas those
workers with more education do not.
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Macroeconomics: Principles, Applications, and Tools
CHAPTER 7
The Economy at
Full Employment
7.4
LABOR MARKET EQUILIBRIUM AND FULL
EMPLOYMENT
 FIGURE 7.5
Determining Full-Employment
Output
Panel B determines the
equilibrium level of employment
at L and the real wage rate of
W. Full-employment output
in Panel A is Y.
• full-employment output
The level of output that results
when the labor market is in
equilibrium and the economy
is producing at full
employment.
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Macroeconomics: Principles, Applications, and Tools
CHAPTER 7
The Economy at
Full Employment
7.5
USING THE FULL-EMPLOYMENT MODEL
Taxes and Potential Output
 FIGURE 7.6
How Employment Taxes
Affect Labor Demand and
Supply
In Panel A, a tax burden on
labor shifts the labor
demand curve to the left
and leads to lower wages
and reduced employment.
In Panel B, the supply
curve for labor is vertical,
which means that wages
fall but employment does
not change.
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Macroeconomics: Principles, Applications, and Tools
CHAPTER 7
The Economy at
Full Employment
APPLICATION
3
A NOBEL LAUREATE EXPLAINS WHY EUROPEANS WORK
LESS THAN AMERICANS OR THE JAPANESE
APPLYING THE CONCEPTS #3: Do differences in taxes and
government benefits explain why Europeans work substantially
fewer hours per year than do U.S. workers or the Japanese?
On average today, the French (and other Europeans) work one-third fewer hours
than do U.S. workers. In the early 1970s Europeans actually worked slightly more
hours than did U.S. workers.
What explains this dramatic turnaround in the space of just 20 years?
Nobel-laureate Edward Prescott of the Federal Reserve Bank of Minneapolis and
Arizona State University attributes the decreases in hours of work in Europe to:
• Increases in the tax burden that ultimately falls on workers.
• Government spending and transfers play a larger role in European
economies than in the United States.
Prescott notes that as the burdens of Social Security and Medicare increase, the
United States may be tempted to increase its tax rates to European levels.
What will happen if we do not make changes in the underlying programs and allow
tax rates to increase?
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CHAPTER 7
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7.5
USING THE FULL-EMPLOYMENT MODEL
Real Business Cycle Theory
• real business cycle theory
The economic theory that emphasizes how shocks to
technology can cause fluctuations in economic activity.
 FIGURE 7.7
How an Adverse
Technology Shock Affects
Labor Demand and Supply
An adverse shock to
technology will decrease
the demand for labor.
As a result, both real
wages and employment fall
as the market equilibrium
moves from a to b.
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CHAPTER 7
The Economy at
Full Employment
7.6
DIVIDING OUTPUT AMONG COMPETING
DEMANDS FOR GDP AT FULL EMPLOYMENT
Crowding Out in a Closed Economy
• crowding out
The reduction in investment (or other component of
GDP) caused by an increase in government spending.
P R I N C I P L E O F O P P O RT U N I T Y C O S T
The opportunity cost of something is what you sacrifice to get it.
• closed economy
An economy without international trade.
output = consumption + investment + government purchases
Y=C+I+G
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Economics:
CHAPTER 7
The Economy at
Full Employment
7.6
DIVIDING OUTPUT AMONG COMPETING
DEMANDS FOR GDP AT FULL EMPLOYMENT
Crowding Out in a Closed Economy
 FIGURE 7.8
U.S. Consumption and
Government Spending
During World War II
Increased government
spending crowds out
consumption by
consumers.
The vertical bar highlights
the time period during
which crowding out
occurred.
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Principles
Macroeconomics:
Economics:
CHAPTER 7
The Economy at
Full Employment
7.6
DIVIDING OUTPUT AMONG COMPETING
DEMANDS FOR GDP AT FULL EMPLOYMENT
Crowding Out in a Closed Economy
 FIGURE 7.9
U.S. Investment and
Government Spending
During World War II
Increased government
spending also crowds out
private investment
spending.
The vertical bar highlights
the time period during
which crowding out
occurred.
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7.6
DIVIDING OUTPUT AMONG COMPETING
DEMANDS FOR GDP AT FULL EMPLOYMENT
Crowding Out in an Open Economy
• open economy
An economy with international trade.
Y = C + I + G + NX
Increased government spending need not crowd out either consumption or
investment. It could lead to reduced exports and increased imports.
Crowding in
• crowding in
The increase of investment (or other
component of GDP) caused by a
decrease in government spending.
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