Definition of unemployed:
- has actively searched for a job in past 4 wks OR
- has been laid off and is waiting to be recalled OR
- will start a new job in next 30 days
Unemployment rate = number unemployed / labor force * 100
- Labor force = all people actively employed or actively seeking employment
Labor force participation rate
- Rate = labor force / working age population
- Working age pop = all people 16 or over not living in institutions
- Fluctuates due to discouraged workers - available to work but neither employed nor seeking
Employment to population ratio
- epratio = number of employed / working age population * 100
Aggregate hours = total number of hours worked in a year by all employed people
- Allows us to estimate productivity of labor - output produced per hour of labor
- Higher productivity = higher wages
- Real Wages = money wage rate adjusted for changes in overall price level
- Calculated using total labor compensation = wages, salaries, and benefits
Three types of unemployment
- Frictional - results from changes in economy that prevent qualified workers from being matched to existing jobs in a timely manner
- Structural - caused by structural changes in economy that eliminate jobs and makes other jobs - employees need to retrain (do not have necessary skills for existing jobs)
- Cyclical - caused by changes in general level of economic output.
- Full employment - when there is no cyclical. There is still friction and structure unemployment tho.
- Natural rate of unemployment = frictional + structural
- Potential GDP - level of GDP country can produce at the natural rate (relates to cyclical)
Consumer Price Index
- Best known indicator of US inflation - basket of goods - reported monthly
- Selects basket, records prices in 30 urban areas, calculate CPI
- CPI = cost of basket at current / cost of basket at reference * 100
CPI Bias
- New goods - products replace by newer but initially more expensive items
- Quality improvements - price increase not inflation, but quality driven
- Commodity substitution - people switch based on cost to similar products - CPI overstates
- Outlet substitution - people shop at discount centers reducing cost not capture in CPI
- This all results in CPI being upward biased, estimate is by about 1%
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