A S S I G N M E N T

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FELICIA IRENE - 202250351

The BLS reported the following data for 2010 :

Labor force : 153.7 million
Employment : 139.1 million
Working-age population : 237.9 million

Calculate the
Unemployment rate
Labor force participation rate
Employment to population ratio

Answer

Unemployment rate = (U/LF) *100%= (14.6/153.7) *100% = 9.5%

Labor force participation rate = (LF/WAP) 100% = (153.7/237.9) 100% = 64.6%
Employment to population ratio = (E/ WAP) *100%= 58.4%
 ASSIGNMENT WEEK 11

MONITORING JOBS AND

INFLATION
FELICIA IRENE
202250351

CHAPTER 22
 UNEMPLOYMENT
IS A PROBLEM
Unemployment is a serious personal and social economic problem for two main reasons. It
results in
Lost incomes and production
Lost human capital

Lost Incomes and Production The loss of a job brings a loss of income and lost production.
These losses are devastating for the people who bear them and they make unemployment a
frightening prospect for everyone. Unemployment benefits create a safety net, but they
don’t fully replace lost earnings

Lost Human Capital Prolonged unemployment permanently damages a person’s job

prospects by destroying human capital.
3 LABOR MARKET INDICATORS
The Census Bureau calculates three indicators of the state of the labor market. They are
The unemployment rate
The employment-to-population ratio
The labor force participation rate
3 LABOR MARKET INDICATORS
 OTHER DEFINITIONS OF
UNEMPLOYMENT
official unemployment A marginally attached worker Part-Time Workers Who Want
definition gives the is a person who currently is Full-Time Jobs Many part-time
correct measure. But it neither working nor looking for workers want to work part
provides data on two work but has indicated that he time. This arrangement fits in
types of or she wants and is available with the other demands on
underemployed labor for a job and has looked for their time. But some part-time
excluded from the work sometime in the recent workers would like fulltime
official measure. They past. A marginally attached jobs and can’t find them. In the
are worker who has stopped official statistics, these workers
■ Marginally attached looking for a job because of are called economic part-time
workers repeated failure to find one is workers and they are partly
■ Part-time workers called a discouraged worker unemployed.
who want full-time jobs
MOST COSTLY UNEMPLOYMENT
All unemployment is costly, but the most costly is long-term unemployment that results
from job loss. People who are unemployed for a few weeks and then find another job bear
some costs of unemployment. But these costs are low compared to the costs borne by
people who remain unemployed for many weeks.

ALTERNATIVE MEASURES OF
UNEMPLOYMENT
To provide information about the aspects of unemployment that we’ve just discussed, the
Bureau of Labor Statistics reports six alternative measures of the unemployment rate: two
that are narrower than the official measure and three that are broader. The narrower
measures focus on the personal cost of unemployment and the broader measures focus on
assessing the full amount of underemployed labor resources.
 UNEMPLOYMENT AND FULL
EMPLOYMENT
FRICTIONAL STRUCTURAL CYCLICAL UNEMPLOYMENT
UNEMPLOYMENT UNEMPLOYMENT The higher than normal
There is an unending The unemployment that arises unemployment at a business
flow of people into and when changes in technology or cycle trough and the lower
out of the labor force as international competition than normal unemployment at
people move through the change the skills needed to a business cycle peak is called
stages of life—from perform jobs or change the cyclical unemployment. A
being in school, to locations of jobs is called worker who is laid off because
finding a job, to working, structural unemployment. the economy is in a recession
perhaps to becoming Structural unemployment usually and who gets rehired some
unhappy with a job and lasts longer than frictional months later when the
looking for a new one, unemployment because workers expansion begins has
and finally, to retiring must retrain and possibly experienced cyclical
from full-time work relocate to find a job. unemployment.
UNEMPLOYMENT AND FULL EMPLOYMENT
NATURAL The Age The Scale of The Real Unemployment
UNEMPLOYMENT Distribution of Structural Wage Rate Benefits
Full employment is defined the Population Change The The natural Unemployment
as a situation in which the An economy scale of unemploymen benefits
unemployment rate equals with a young structural t rate is increase the
the natural unemployment population has change is influenced by natural
rate. a large number sometimes the level of the unemployment
The natural unemployment of new job small. The real wage rate. rate by
rate is influenced by many seekers every same jobs Real wage lowering the
factors but the most year and has a using the same rates that bring opportunity
important ones are high level of machines unemploymen cost of job
■ The age distribution of frictional remain in place t are a search
the population unemployment for many years. minimum
■ The scale of structural But sometimes wage and an
change there is a efficiency
■ The real wage rate technological wage.
■ Unemployment benefits upheaval.
 THE PRICE LEVEL, INFLATION, AND DEFLATION
Redistributes Redistributes Wealth People enter Diverts Resources Lowers Real GDP and
Income Workers into loan contracts that are fixed in from Production Employment
and employers sign money terms and that pay an interest Unpredictable Unexpected inflation
wage contracts that rate agreed as a percentage of the inflation or deflation that raises firms’
last for a year or money borrowed and lent. With an turns the economy profits brings a rise in
more. An unexpected burst of inflation, the into a casino and investment and a
unexpected burst of money that the borrower repays to diverts resources boom in production
inflation raises the lender buys less than the money from productive and employment. Real
prices but doesn’t originally loaned. The borrower wins activities to GDP rises above
immediately raise and the lender loses. The interest forecasting inflation. potential GDP and the
the wages. Workers paid on the loan doesn’t compensate It can become more unemployment rate
are worse off the lender for the loss in the value of profitable to falls below the natural
because their wages the money loaned. With an forecast the rate. But this situation
buy less than they unexpected deflation, the money inflation rate or is temporary.
bargained for and that the borrower repays to the deflation rate
employers are lender buys more than the money correctly than to
better off because originally loaned. The borrower loses invent a new
their profits rise. and the lender wins. product.
 Every month, the Bureau of Labor Statistics (BLS)
THE CONSUMER measures the price level by calculating the Consumer
Price Index (CPI), which is a measure of the average of
PRICE INDEX the prices paid by urban consumers for a fixed basket of
consumer goods and services

The CPI is defined to equal 100 for a period called the

READING THE CPI reference base period. Currently, the reference base
period is 1982–1984. That is, for the average of the 36
NUMBERS months from January 1982 through December 1984, the
CPI equals 100.
MEASURING THE INFLATION RATE
 THE BIASED CPI
New Goods Bias If Quality Change Commodity Substitution Outlet Substitution
you want to compare Bias Cars and Bias Changes in relative Bias When confronted
the price level in 2017 many other goods prices lead consumers to with higher prices,
with that in 1970, you get better every change the items they people use discount
must somehow year. Part of the buy. For example, if the stores more
compare the price of rise in the prices price of beef rises and the frequently and
a computer today of these goods is price of chicken remains convenience stores
with that of a a payment for unchanged, people buy less frequently. This
typewriter in 1970. improved quality more chicken and less phenomenon is called
Because a PC is more and is not beef. This switch from outlet substitution.
expensive than a inflation. But the beef to chicken might The CPI survey does
typewriter was, the CPI counts the provide the same amount not monitor outlet
arrival of the PC puts entire price rise as of meat and the same substitutions.
an upward bias into inflation, so the enjoyment as before and
the CPI and its CPI overstates expenditure is the same
inflation rate. inflation. as before
CONSEQUNCES AND MAGNITUDE
OF BIAS
CPI overstates inflation by 1.1 percentage points a year. That is, if the CPI rises by 3.1 percent a
year, most likely the inflation rate is 2 percent a year. But this estimate of bias was made in
1996, and the BLS has now corrected much of the bias with more frequent expenditure
surveys to avoid substitution bias and by using statistical methods to lessen new goods and
quality change bias. The bias in today’s CPI is almost certainly less than it was in 1996, but
some remains.
 ALTERNATIVE PRICE
INDEX
The CPI is just one of many alternative price level index numbers and because of the bias in the
CPI, other measures are used for some purposes. We’ll describe three alternatives to the CPI and
explain when and why they might be preferred to the CPI. The alternatives are
■ Chained CPI
■ Personal consumption expenditure deflator
■ GDP deflator

The chained CPI overcomes the sources of bias in the CPI. It incorporates substitutions and new
goods bias by using current and previous period quantities rather than fixed quantities from an
earlier period.
CORE AND STICKY PRICE INFLATION
The first and most widely used is the core inflation rate, which is a measure of the inflation rate
that excludes volatile prices. (The inflation rate that includes all prices is called the headline
inflation rate.) As a practical matter, the core inflation rate is calculated as the percentage
change in the PCE index excluding the prices of food and fuel. The prices of these two items are
among the most volatile.

THE VARIABLES IN MACROECONOMICS

By using the GDP deflator, we can deflate other nominal variables to find their real values. For
example, the real wage rate is the nominal wage rate divided by the GDP deflator. We can adjust
any nominal quantity or price variable for inflation by deflating it—by dividing it by the price
level.