Econ 104 Answers 052209
Parks
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Is it fair that homeless people aren’t counted as unemployed? Do they deserve to be counted as unemployed? Are homeless
people responsible for their circumstances (does/should responsibility even make a difference)?
I think this question brings up a lot of issues, and causes “the system” to be seriously examined and critiqued. There are
many underlying issues, which should be addressed, that stem from this question.
The first issue is the definition of a discouraged worker. Way too many situations could classify someone as “discouraged.”
The BLS’ response to discouraged workers is that they’re not unemployed because they “do not take the initiative to find a job.” That
reasoning is so flawed because cases such as homelessness clearly demonstrate that circumstances aren’t always a case of lack of
initiative, but lack of the general basic things that are needed to even apply for a job, or be considered as unemployed.
The TIMES article, “Down and Out,” by Thomas McCarroll
(http://www.time.com/time/magazine/article/0,9171,973773,00.html) does a good job of explaining this homelessness issue in relation
to a discouraged worker. McCarroll says, “To be officially counted as unemployed, you must have an address.” So hypothetically, a
person could get fired from a job, lose his home because he couldn’t pay for it anymore, and then not be allowed to count as
unemployed because he no longer has an address. Or another hypothetical situation: A person could lose his job, develop
psychological issues because of it, lose his house, and not be hired for a job because of his recently developed mental illness. Or, a
person couldn’t even apply for a job because many jobs require an address in order to even be considered.
All of those examples were told hypothetically, but they happen in real life all of the time. It’s important to note that this is
about much more than getting a statistic right. Clearly the issue of homelessness means that the way of measuring unemployment is
inaccurate; however, the bigger issue is that without being considered “unemployed,” not only is the documented unemployment rate
wrong, but enough people aren’t getting helped. Sure, there are always those people who will try to beat the system and apply for
unemployment insurance when they could instead work harder at finding jobs; but there are also many people who are invisible, and
being ignored right now because of that flawed system. They’re not considered unemployed, thus, they’re not receiving
unemployment insurance that they may very-well deserve.
Ultimately, the label “discouraged worker” is a problem because it includes so many things, and concludes that the cause of
so many different issues stem from a lack of initiative. Clearly, that is not always the case. Note that the unemployment rate for
April 2009 was 8.9% for all workers (http://www.bls.gov/news.release/empsit.nr0.htm) while including discouraged workers it
was 9.3% (http://www.bls.gov/news.release/empsit.t12.htm) . The broadest definition of unemployment rate in April was
15.8%. Those rates were 4.8%, 5.0% and 8.9% in April 2008. The number of discouraged workers rose from 421,000 to
717,000 (www.bls.gov/opub/ils/pdf/opbils74.pdf)
Why does it take a long time for unemployment rates to decrease?
We have discussed in class that unemployment is considered a “lagging indicator” of a recession. That is, people have tended to think
that “[unemployment] peaks well after the recession is officially over” (Chapter 6, Yeager). An article entitles “A look at
postrecession employment trends” from Federal Reserve Bank of Atlanta explains that “An examination of labor market performance
during and after previous recessions suggests that employment recoveries vary in length, and the employment downturns are generally
much longer than the actual recessions” (http://macroblog.typepad.com/macroblog/2009/03/a-look-at-postrecession-employmenttrends.html). Several causes of lagging unemployment include the fact that workers who have been unemployed during a
recession have not kept up with technological advances and the desire to minimize risk or loss immediately after a recession.
Additionally, I would like to address lagging unemployment in terms of this recession. In contrast to the idea that unemployment is a
lagging indicator, John Maudlin channels data to support the idea that the current unemployment rates are not just a lagging indicator
but a coincidental indicator. He explains that because of the credit-based nature of the recession, rising unemployment and a lack of
opportunities for credit will deepen the recession. Maudlin writes: “The typical pundit keeps telling us unemployment is a lagging
indicator, and that recovery will be well under way before it shows up in the job numbers”
(http://www.ritholtz.com/blog/2009/05/faith-based-economics/). He then goes on to explain that this idea is not necessarily applicable
for the current recession because of the credit problems across the board and thus, decreased demand and purchasing power from a
growing unemployed sector.
Maudlin further explains (citing Bridgewater economic analysis) why he worries that high unemployment and the recession are
coincidental conditions: “Normally, labor markets lag the economy because incremental spending transactions are financed via debt,
stimulated by interest rate cuts. But as long as credit remains frozen, spending will require income, and income comes from jobs. And
debt service payments are made out of income. Therefore, in a deleveraging environment job growth becomes an important leading,
causal indicator of demand and other economic conditions.” I think that this a really valid and important point to consider: How does
this recession differ, in terms of unemployment, with the recession in 2001, 1993, and the early 1980s? NOTE: Part of the reason
unemployment is lagging is that firms are reluctant to release (furlow, fire) trained employees during the downturn and
reluctant to hire replacements until they are sure that there is an upturn.
What is the point of knowing the unemployment rate?
The unemployment rate is a measure of the percentage of the labor force that is unemployed. Unemployment, as defined by
the Bureau of Labor Statistics, is people who do not have a job, have looked actively for work within the past four weeks, and are
currently available to work. However, someone must have an address to qualify as unemployed, excluding the homeless. Discouraged
workers are also not included in the unemployment count, as they have “given up looking” for work.
Econ 104 Answers 052209
Parks
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Because unemployment rates do not account for discouraged workers or the homeless, these omissions understate the “true”
unemployment. The survey of 60,000 households used to determine unemployment data does not account for hidden
unemployment or underemployment, which also contributes to understating the unemployment rate. And because a survey
respondent must only “say” that they have actively sought out work in the last four weeks to be included in the unemployed group
rather than the discouraged worker group, the unemployment rate may be potentially overstated due to this problem.
Overall, the unemployment rate numbers can be inaccurate. Given that these numbers are not precise, and can never be
perfectly precise, what is the point of spending time and resources to determine the unemployment rate? Although the unemployment
rate is not a perfect estimate, it can provide important information for adjusting policies, services, and plans that better suit the current
economic times.
Obviously, the unemployment rate serves as a joblessness gauge and therefore also serves as a gauge of the growth rate of the
economy. However, it is a lagging indicator. “Employers are reluctant to lay people off when the economy turns bad, and even
more reluctant to hire them when the economy improves.
(http://useconomy.about.com/od/economicindicators/p/unemploy_rate.htm)” For that reason, the unemployment rate can only
confirm what the other indicators are showing. It measures the effects of the recession.
Knowing the effects of a recession can be very important. The retail sector can use this information to gauge how much
people will be buying. Individuals, especially unemployed individuals, will be able to weigh how much competition in the market they
have as well as how much negotiating power they hold. If the unemployment rate is abnormally high, the government may look to step
in to try and stimulate the economy by providing creating jobs or extending or adding benefits for the unemployed.
Because of this potential problem, should the government consider placing new restrictions on unemployment benefits in
order to provide ample motivation for people to keep searching for jobs and acquiring new skill so they do not drop out of the
workforce, or would that be ultimately counterproductive?
The issue of whether or not to place new restrictions on unemployment is a sticky one. On one hand, it would be positive for
the government to rethink the restrictions because then the “discouraged worker” might have more motivation to get out and find a job
if they are receiving less money. On the other hand, it could have an adverse effect. The economy could be in such poor shape that
even workers with courage may be unable to find jobs to pay the cost of living with only the essentials. If the government were to
lower benefits for the unemployed then it is possible that those who are actually unable to find jobs may not be able to live off such
benefits. The article “Jobless Claims Fell in Latest Week” states that “initial claims for jobless benefits fell 12,000 to a seasonally
adjusted 631,000” and that the figures are constantly fluctuating (http://online.wsj.com/article/SB124290872419043063.html). Many
people daily are claiming unemployment as a way to earn the benefits.
For those who have lost their jobs, maybe it would be productive for there to be less unemployment benefits because then
those people would be more encouraged to register for community college and learn a new skill or trade. With the new learned skill,
the people may in turn be able to find a job that pays well enough to live off of. Two problems: unemployed rarely have the
resources to pay tuition and rarely correctly select a skill that is both in demand and for which they are suited. Government
training programs similarly may mistrain people.
“U.S. Must Keep Unemployment a Temporary Condition for Most” suggests that “the alternative to looking for work is
applying for Social Security disability benefits -- and dropping out of the labor force forever”
(http://online.wsj.com/article/SB124284810960640349.html). However, since social security disability has raised a significant
amount since the recession began, applying for disability benefits could in fact be counterproductive. The government could consider
placing new restrictions on disability benefits as well as unemployment benefits, making those who either lack courage or don’t feel
like putting in the effort to find a job have no other choice.
Question: Should the government consider placing new restrictions on unemployment benefits in order to provide ample
motivation to people to keep searching for jobs and acquiring new skills so they do not drop out of the workforce, or would
that be ultimately counter-productive?
Answer: Unemployment comes at a great cost to society as a reduction in employed workers results in a loss of actual output and a
consequently, a reduction in GDP. Because of this, government legislators must work to reduce unemployment, and allowing for
unemployment benefits has proven to be a “double-edged sword,” as stated in class. While unemployment benefits allow for
individuals to at least survive their unemployment period, “there is a strong consensus among economists that unemployment
insurance increases the length of unemployment by allowing workers to delay their search for a new job or put off changes, such as
learning new skills or relocating, that might be necessary for them to find new jobs. Extending benefits is only likely to exacerbate
these negative effects.”
(http://www.heritage.org/research/labor/wm450.cfm)
Thus, the desire to give aid to those who have been affected by a recession, such as the current one, is understandable,
however, if too much is done it may not have the desired result. In other words unemployment benefits “ are the mark of a civilized
society, clubbing together to provide assistance to those in need. They are also, regrettably, an incentive to remain unemployed. At
their worst, unemployment benefits pay people to watch daytime television.” (http://www.slate.com/id/2206420/) If an individual is
receiving unemployment benefits, and is then told that they will continue to receive either more of them or for a longer period of time,
they will often remain unemployed longer, for, “increases in benefits have repeatedly been linked with longer periods between jobs.”
(http://www.slate.com/id/2206420/)
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Parks
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Nevertheless, other economists see a more positive outcome, and “Chetty realized that unemployment benefits do not
merely pay people to stay out of work; they also protect them from having to rush into an unsuitable job.”
(http://www.slate.com/id/2206420/) This same economist also noticed that those with considerable savings prior to unemployment do
not take longer find a new job when they are given unemployment benefits, while those without savings do. As a result, increasing
unemployment benefits may lead to a reduction in low wage or unskilled laborers in particular, who would typically have less savings
at the time of unemployment.
The issue has become more important recently as the unemployment insurance duration was increased from 26 weeks to 39
weeks in 2008, and President Obama wants to increase them further and include part time workers among those eligible for benefits.
However, research done by Bruce Meyer from the University of Chicago found that in the US, a 10% increase in unemployment
benefits reduces the probability that an individual will move out of unemployment by 5.3%.
(http://falkenblog.blogspot.com/2009/02/unemployment-insurance-is-also-bad-idea.html) Also, as shown in the two graphs below,
people are much more likely to become employed when they are no longer eligible to receive unemployment benefits, and the
duration of unemployment is almost half for those not eligible for benefits in the first place.
http://www.ncpa.org/pub/ba426
Overall, unemployment benefits, while often resulting in increased unemployment and productivity loss, are vital for many of those
who would be starving etc. without them. The problem is deciding how much is too much and how long is too long, and this is a
question that has no definitive answer
Why, or why not, is this [“lifetime employment”, as practiced in Japan] an effective method for curbing unemployment?
“Lifetime employment” is not an effective method for curbing unemployment. This is because the inflexibility that
characterizes this employment model does not prevent a slowing or stagnating economy. A decrease in an economy’s overall
production will either lead to, or can be caused by, an increase in the unemployment rate. The inability of the “lifetime employment”
model to address a stagnating economy shows that it is merely a redistribution of the available and dwindling wealth. Wage cuts act
as the means of redistribution, and only serve to make both the dwindling wealth and its negative affects more equitably felt by the
labor force (Tabuchi). The affect(effect please) of wage cuts is a decrease in the purchasing power of whatever population
experiences such cuts. Such a decrease in the purchasing power can cause a slowing economy to slow down even more or a
contracting economy to contract even more.
The “lifetime employment” model first arose in Japan after the First World War. A guarantee of “lifetime employment” from
an employer to a prospective employee served to cement a mutual loyalty between the two. This two-way loyalty is partly credited
with strengthening the fragile Japanese economy after the Second World War because it provided a stable labor force for the recovery.
A continuation of this “lifetime employment” model was attractive because the shared expectation of mutual loyalty between the
employer and the employee was a strong incentive on the employer’s part to substantially invest in employee training and education
(Ellington).
The “lifetime employment” model is attractive for an economy attempting to rebuild itself as long as its focus is primarily
turned inwards. The drawback to the “lifetime employment” model arises when this inflexible employment system is thrust into the
global economy. The current global economy is populated by more flexible economies that rely upon employee mobility to effect or
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counter changes in their overall production (Ellington). An inflexible employment model such as “lifetime employment” is illequipped to compete with models that possess more inherent flexibility.
The seniority system of paying wages in Japan, though not equivalent to “lifetime employment”, is similar to it. In the
seniority system an employee’s pay is based upon years of service to the company. The flaw in rewarding an employee for his/her
years at the company is that it promotes docility. Promotions are given to those employees who either do not fail in their ventures, or
fail the absolute least amount. In order to the reap the benefits of the seniority system, the employees shy away from taking risks, and
as a result are cautious towards taking the necessary steps for innovation. A lack of innovation can lead to a decrease in economic
output as the economy as a whole is outpaced by international competitors (Ellington).
One additional reason why the unemployment rate in Japan is so low compared to other countries is because it is
engineered to appear that way. The “lifetime employment” model and the Japanese Ministry of Labor’s definition of “unemployed”
interact in such a way as to artificially decrease the unemployment rate. This arises from different criteria used to categorize the
unemployed and the labor force in Japan. One example is that a stay-at-home mother in the U.S. is considered to be unemployed if
she were to register at a government employment office. In Japan the same mother would not be counted as part of the labor force
because she did not previously hold a job. Workers seeking new jobs in the U.S. are considered unemployed, while they are not
considered unemployed in the U.S. In the U.S., were a worker to turn down a job offer then he/she would be considered unemployed.
In Japan a worker is considered employed upon receiving any job offer, regardless of whether that offer is taken or not (Brown).
Thus, these different criteria used to define “unemployed” and the tendency of the wage cuts endemic to “lifetime
employment” to decrease economic output (which will lead to further slowing of the economy), “lifetime employment” is not a
tenable solution to alleviating unemployment.
Brown, Robert. "Unemployment." Encyclopedia of Japanese Business and Management Google Book Search. 2002. 21
May 2009
<http://books.google.com/books?id=otgWLARRc5cC&pg=PA463&lpg=PA463&dq=jap
an+method+lowering+unemployment+effective&source=bl&ots=DfRSkGVu17&sig=5C
CCqLgT0Xix0aNnU8Lg3caJhA8&hl=en&ei=IqAVSoqINZig8wSj1d3HAg&sa=X&oi=b ook_result&ct=result&resnum=4>.
Ellington, Lucien. "Japan's Economy: 21st Century Challenges." Japan's Economy: 21st Century Challenges - SPICE. May 1995.
Stanford Program on International and Cross-Cultural
Education: Freeman Spogli Institute for International Studies. 21 May
2009
<http://spice.stanford.edu/docs/143>.
Tabuchi, Hiroko. "In Japan, Secure Jobs Have a Cost." Japan Pays a Price for Its Lifetime Jobs - NYTimes.com. 20 May 2009. The
New York Times. 21 May 2009 <http://www.nytimes.com/2009/05/20/business/global/20zombie.html>.
My question what is the point of knowing the unemployment rate if such numbers are inaccurate?
As stated in the article that there is a “bizarre combination of a falling employment rate and a falling unemployment rate.” This
is due to the fact that many people are not working by their own decision. Such issues can lead to misleading data in unemployment
rate. Why then is the unemployment rate important at all?
The unemployment rate is a quick snapshot of the current of the labor market. Central banks are “under strict pressure to
keep unemployment under control.” High unemployment causes the central banks to lower their interest rates in order to
alleviate the monetary pressure individuals face during high unemployment. The central banks closely follow the
unemployment rate to “bolster the economy to remedy the employment situation.”
The unemployment rate is a quick indication of the state of the “economy’s production, private consumption, workers’ earnings
and consumer sentiment.” It is inaccurate for the purpose of a quick overview of the economy. If, however, the unemployment rate
was meticulously calculated and balanced, it would take too long for the data to be revealed. Therefore, the fact that the
unemployment rate is inaccurate is overlooked for its purpose.
The government itself will look at the unemployment rate and determine what steps it should take to alleviate the issue. The
government will try to create more jobs for the unemployed and will also extend benefits.
However, one issue with the unemployment rate is that it is a lagging indicator. Though it does give a general idea of the state of
the economy, the lagging factor reveals the situation after it has occurred. There is really no way to immediately determine the state of
the economy until something has occurred. Therefore the unemployment rates are constantly posted monthly to give a up to date
information and sufficient time for employers and the government to act.
http://www.fxwords.com/u/unemployment-rate.html
http://useconomy.about.com/od/economicindicators/p/unemploy_rate.htm
http://www.calculatedriskblog.com/2009/05/weekly-unemployment-claims-decline.html
It takes a long for the unemployment rate to decrease. Why is that?
Unemployment is measured as the people who wish to be employed but cannot find a job. If an economy is in a recession
then work is typically harder to locate. This leads to an increase in unemployment.
Despite this, unemployment does not proceed a recession, rather, unemployment is a lagging indicator of recession.
Unemployment is considered a lagging indicator because the cause and effect are not easily recognizable in the short run. For
example an economy can see a reduction in growth while still seeing somewhat stable unemployment.
According to the article, in “the last two recessions, initial unemployment claims peaked just before the end of the
recession, but then stayed elevated for a long period following the recession - a "jobless recovery".” This stems from the fact that
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unemployment is a lagging indicator of the economy. Since unemployment lags coming into the recession, it lags leaving out of the
recession.
This is because the effects of an improving economy are not felt overnight; rather, the effects are felt over time. Stimulus
does not occur because we wish it to. Stimulus is the result of a prolonged effort to increase the economy.
Please put thequestion in bold before the answer.
The quality of a person’s work and the time and effort that individual puts into their job does matter when a company starts
laying off jobs. The prime example of this is college professors achieving tenure; those who teach the best and the longest are unable
to be fired and are paid better than brand new professors.
In the business world, as Professor Parks said in class, the philosophy of “first one in, last one out” applies. The Wall Street
Journal article this question is about states that people in their 20s and 30s are more at risk for losing their jobs than older employees.
This makes sense in that someone who has been working in a given company for fifteen years and who is forty-eight has much more
experience will be more valuable to a company than a twenty-five year old fresh out of graduate school.
However, the article stated that the companies have adopted the “first one in last one out” policy, meaning that if a thirty year
old has worked in a company for five years, and a forty year old applied and got the job but has only been working for three years, the
thirty year old has more experience and therefore will be more valuable overall to the company. In general terms, the person who has
more experience is assumed to have put more time and effort into their job, as well as better at their job. Otherwise, logically
speaking, that person would have been let go.
There are many causes for high unemployment rates, most notably at the moment, the economic recession. Many companies
are laying off employees because they can’t afford to keep all of them on without drastic pay cuts. Furthermore, the companies
become worried about the failing economy and therefore are nervous about keeping people on or bringing people back because they
are afraid their businesses will suffer financially.
Unemployment begins to decline when the economy begins to stabilize. It takes quite a while after the recession ends because
the companies are still wary of the economy and are still recovering from the recession. Therefore, it takes longer for companies to
hire more employees. Companies are afraid to take risks until they can be assured that the economy is stable enough to support
the business and all its employees.
http://money.cnn.com/2003/06/19/news/economy/jobless_rate/index.htm
Female Employment in Europe
Unemployment in Europe
The unemployment rate in European countries has remained high at 8 to 11 percent for 18 of the past 20 years.
Unemployment Rate
Ireland and the Netherlands, however, have reduced unemployment to near 4.5 percent. Economists have attributed this
phenomenon to reforms that include wage moderation, income tax cuts, tightening of unemployment benefits, and reductions
in barriers to part-time work.
In response to whether similar reforms applied to other European countries would be as productive, the Federal Reserve said,
“Many of the advances brought about by the Irish and Dutch reforms – such as the increased participation of women in the workforce
– had occurred earlier in other European countries. Thus, the scope for improvement in the unemployment rates in these countries
would undoubtedly be smaller.”
Why did the reforms have a greater contribution to unemployment levels in Ireland and the Netherlands than in other
European countries? To address the question, this paper studies the effect of increased women in the labor force on employment levels
in Europe.
Female employment
Statistics:
 European employment rate has been a downward trend since the mid-1970s.
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

The exception was when employment in the late 1980s increased (from 59.4 percent in 1983 to 61.6 percent in 1989).
The downward trend resumed in the 1900s, falling 1-3 percentage points in Denmark, Germany, Spain, Italy, Portugal,
Finland, Sweden, and the UK.
 Only the Netherlands, Ireland, and Belgium had increases of more than 1 percentage point in employment in the 1900s (4.7,
2,3, and 1.9 points respectively).
The increase in employment in the 1980s can be attributed to the increase in female employment, which was significant
enough to compensate for the fall in male employment rates. In the 1900s, male employment rates continued to fall. Female
employment rates were more modest than they were in the 1980s, resulting in a downward employment trend. The Netherlands and
Ireland (and to a lesser extent, Belgium and Luxembourg) experienced high female employment rates in the 1900s, relative to the
other European countries. This may have contributed to their positive employment rates.
Employment rates in the European Union
1989
1994
Total Male Female
Total Male Female
Belgium
53.8
67.9
39.7
55.7
44.8
44.8
Denmark
75.3
80.9
69.5
72.4
67.1
67.1
Germany (e)
73.0
78.6
67.7
62.7
56.2
56.2
Germany (w)
64.1
77.8
50.3
65.1
54.7
54.7
Germany
67.9
78.4
57.2
64.7
55.0
55.0
Spain
48.0
67.0
29.5
45.0
30.2
30.2
France
60.8
71.4
50.6
58.9
51.3
51.3
Greece
55.2
74.1
37.6
54.1
37.1
37.1
Ireland
50.3
66.4
33.9
52.6
39.8
39.8
Italy
53.5
71.3
35.8
50.9
35.6
35.6
Luxembourg
59.3
77.0
41.3
60.2
44.9
44.9
Netherlands
59.1
73.5
44.4
63.8
52.7
52.7
Austria
56.8
47.0
47.0
Portugal
65.1
78.9
52.4
62.9
54.1
54.1
Sweden
82.9
85.1
80.7
72.2
70.9
70.9
Finland
73.2
75.9
70.5
59.1
58.0
58.0
UK
70.6
80.2
60.9
67.7
61.1
61.1
Conclusion
Female employment rates were significant enough to offset the declines in male employment rates in the 1900s in Ireland and the
Netherlands. However, it is difficult to study the magnitude of the effect of a single variable (female employment) on an aggregate
outcome (employment growth). The rise in female employment may have had a minimal contribution to the unemployment declines
in Ireland and the Netherlands, but it alone provides insufficient data and complexity to answer our initial question.
Sources
http://www.newyorkfed.org/research/current_issues/ci7-5.pdf
http://books.google.com/books?id=ylEXsrMm5hUC&pg=PA120&lpg=PA120&dq=unemployment+rate+by+gender+europe&source
=bl&ots=4PkIoYJiWV&sig=DHaDRwE0FvNbIWFLUh88Cud3Re8&hl=en&ei=aaIVSsSeMt7gtgeBmczjDA&sa=X&oi=book_result
&ct=result&resnum=4#PPA120,M1
1. Why talk about employment rates rather than unemployment rates? 2. Are these employment rates (percentages) of the
labor force, adult population or entire population?