1、slide 0,Chapter objectives,The natural rate of unemployment: what it means what causes it understanding its behavior in the real world,Natural Rate of Unemployment,Natural rate of unemployment: the average rate of unemployment around which the economy fluctuates. In a recession, the actual unemploym
2、ent rate rises above the natural rate. In a boom, the actual unemployment rate falls below the natural rate.,slide 2,U.S. Unemployment, 1958-2002,slide 3,A first model of the natural rate,Notation:L = # of workers in labor forceE = # of employed workersU = # of unemployedU/L = unemployment rate,slid
3、e 4,Assumptions:,1. L is exogenously fixed. 2. During any given month, s = fraction of employed workers that become separated from their jobs, f = fraction of unemployed workers that find jobs.,s = rate of job separations f = rate of job finding (both exogenous),slide 5,The transitions between emplo
4、yment and unemployment,Employed,Unemployed,slide 6,The steady state condition,Definition: the labor market is in steady state, or long-run equilibrium, if the unemployment rate is constant. The steady-state condition is:,s E = f U,# of employed people who lose or leave their jobs,# of unemployed peo
5、ple who find jobs,slide 7,Solving for the “equilibrium” U rate,f U = s E = s (L U )= s L s U Solve for U/L: (f + s)U = s L so,slide 8,Example:,Each month, 1% of employed workers lose their jobs (s = 0.01) Each month, 19% of unemployed workers find jobs (f = 0.19) Find the natural rate of unemploymen
6、t:,slide 9,policy implication,A policy that aims to reduce the natural rate of unemployment will succeed only if it lowers s or increases f.,slide 10,Why is there unemployment?,If job finding were instantaneous (f = 1), then all spells of unemployment would be brief, and the natural rate would be ne
7、ar zero. There are two reasons why f 1:1. job search2. wage rigidity,slide 11,Job Search & Frictional Unemployment,frictional unemployment: caused by the time it takes workers to search for a job occurs even when wages are flexible and there are enough jobs to go around occurs because workers have d
8、ifferent abilities, preferences jobs have different skill requirements geographic mobility of workers not instantaneous flow of information about vacancies and job candidates is imperfect,slide 12,Sectoral shifts,def: changes in the composition of demand among industries or regions example: Technolo
9、gical change increases demand for computer repair persons, decreases demand for typewriter repair persons example: A new international trade agreement causes greater demand for workers in the export sectors and less demand for workers in import-competing sectors. It takes time for workers to change
10、sectors, so sectoral shifts cause frictional unemployment.,slide 13,Industry shares in U.S. GDP, 1960,slide 14,Industry shares in U.S. GDP, 1997,slide 15,Sectoral shifts abound,more examples: Late 1800s: decline of agriculture, increase in manufacturing Late 1900s: relative decline of manufacturing,
11、 increase in service sector 1970s energy crisis caused a shift in demand away from huge gas guzzlers （酒鬼，大吃大喝的人）toward smaller cars. In our dynamic economy, smaller (though still significant) sectoral shifts occur frequently, contributing to frictional unemployment.,Public Policy and Job Search,Govt
12、 programs affecting unemployment Govt employment agencies: disseminate（传播） info about job openings to better match workers & jobs Public job training programs: help workers displaced from declining industries get skills needed for jobs in growing industries,UI pays part of a workers former wages for
13、 a limited time after losing his/her job. UI increases search unemployment, because it: reduces the opportunity cost of being unemployed reduces the urgency（紧急、迫切） of finding work hence, reduces f Studies: The longer a worker is eligible（合格的） for UI, the longer the duration of the average spell of u
14、nemployment.,Unemployment insurance (UI),By allowing workers more time to search,UI may lead to better matches between jobs and workers, which would lead to greater productivity and higher incomes.,Benefits of UI,slide 19,Why is there unemployment?,There are two reasons why f 1:1. job search2. wage
15、rigidity,DONE ,Next ,slide 20,Unemployment from real wage rigidity,If the real wage is stuck above the eqm level, then there arent enough jobs to go around.,slide 21,Unemployment from real wage rigidity,If the real wage is stuck above the eqm level, then there arent enough jobs to go around.,Then, f
16、irms must ration the scarce jobs among workers.,Structural unemployment: the unemployment resulting from real wage rigidity and job rationing.,slide 22,Reasons for wage rigidity,1. Minimum wage laws 2. Labor unions 3. Efficiency wages,slide 23,The minimum wage,The minimum wage is well below the eqm
17、wage for most workers, so it cannot explain the majority of natural rate unemployment. However, the minimum wage may exceed the eqm wage of unskilled workers, especially teenagers. If so, then we would expect that increases in the minimum wage would increase unemployment among these groups.,slide 24
18、,The minimum wage in the real world:,In Sept 1996, the minimum wage was raised from $4.25 to $4.75. Heres what happened:,Other studies: A 10% increase in the minimum wage increases teenage unemployment by 1-3%.,slide 25,Labor unions,Unions exercise monopoly power to secure higher wages for their mem
19、bers. When the union wage exceeds the eqm wage, unemployment results. Employed union workers are insiders whose interest is to keep wages high. Unemployed non-union workers are outsiders and would prefer wages to be lower (so that labor demand would be high enough for them to get jobs).,Union member
20、ship and wage ratios by industry, 2001,RBU = nonunion workers represented by a union wage ratio = 100(union + RBU wage)/(nonunion wage),slide 26,Efficiency Wage Theory,Theories in which high wages increase worker productivity: attract higher quality job applicants increase worker effort and reduce “
21、shirking” reduce turnover, which is costly improve health of workers (in developing countries) The increased productivity justifies the cost of paying above-equilibrium wages. The result: unemployment,slide 27,slide 28,Question for Discussion:,Use the material weve just covered to come up with a pol
22、icy or policies to try to reduce the natural rate of unemployment. Note whether your policy targets frictional or structural unemployment.,slide 29,The duration of U.S. unemployment, average over 1993-2002,slide 30,The duration of unemployment,The data: More spells of unemployment are short-term tha
23、n medium-term or long-term. Yet, most of the total time spent unemployed is attributable to the long-term unemployed. This long-term unemployment is probably structural and/or due to sectoral shifts among vastly different industries. Knowing this is important because it can help us craft policies th
24、at are more likely to succeed.,slide 31,Actual & natural rates of unemployment in the U.S.,slide 32,EXPLAINING THE TREND: The minimum wage,The trend in the real minimum wage is similar to the behavior of the natural rate of unemployment.,slide 33,EXPLAINING THE TREND: Union membership,Since the earl
25、y 1980s, the natural rate of unemploy-ment and union membership have both fallen. But, from 1950s to about 1980, the natural rate rose while union membership fell.,slide 34,Since mid-1980s, oil prices less volatile, so fewer sectoral shifts.,EXPLAINING THE TREND: Sectoral shifts,slide 35,EXPLAINING
26、THE TREND: Demographics,1970s: The Baby Boomers were young. Young workers change jobs more frequently (high value of s). Late 1980s through today: Baby Boomers aged. Middle-aged workers change jobs less often (low s).,slide 36,The rise in European Unemployment,0,2,4,6,8,10,12,slide 37,The rise in Eu
27、ropean Unemployment,Two explanations: 1. Most countries in Europe have generous social insurance programs. 2. Shift in demand from unskilled to skilled workers, due to technological change.,This demand shift occurred in the U.S., too. But wage rigidity is less of a problem here, so the shift caused
28、an increase in the skilled- to-unskilled wage gap instead of an increase in unemployment.,slide 38,Chapter summary,1. The natural rate of unemployment the long-run average or “steady state” rate of unemployment depends on the rates of job separation and job finding 2. Frictional unemployment due to
29、the time it takes to match workers with jobs may be increased by unemployment insurance,slide 39,Chapter summary,3. Structural unemployment results from wage rigidity - the real wage remains above the equilibrium level causes: minimum wage, unions, efficiency wages 4. Duration of unemployment most s
30、pells are short term but most weeks of unemployment are attributable to a small number of long-term unemployed persons,slide 40,Chapter summary,5. Behavior of the natural rate in the U.S. rose from 1950s to early 1980s, then fell possible explanations: trends in real minimum wage, union membership, prevalence of sectoral shifts, and aging of the Baby Boomers 6. European unemployment has risen sharply since 1980 probably due to generous unemployment insurance there and a technology-driven shift in demand away from unskilled workers,
