Employment &
Unemployment
Lecture 10
Dr. Jennifer P. Wissink
©2016 Jennifer P. Wissink, all rights reserved.
March 2, 2016
Announcements: 1120 S2016
 Prelim
1 is next week!
 See the Bb announcement for all the details –
including when I will have office hours for you
guys on this Friday.
 Remember to consult the syllabus on our web site
for course policy and other exam related
information.
 Make sure you consult the Quizzes, Homework, &
Sample Exams page
– https://courses.cit.cornell.edu/econ1120jpw/pset.htm
i>clicker questions
Can I use a cell
phone or a smart
phone or graphing
calculator or
anything like that for
the prelim?
A.Yes
B.No
Should I buy a
simple function
calculator before
Prelim 1?
A.Yes
B.No
Can I use a help
sheet during the
prelim?
A.Yes
B.No
Using An Index Like the Implicit GDP Deflator Index


In 1975/76 Cornell tuition + fees +
room & board cost approximately
$5,000 per YEAR!
So, based solely on the implicit GDP
deflator index, what should Cornell
have cost in 2011/12?
ANOTHER Measure of Inflation:
The Consumer Price Index

The consumer price index (CPI) is a price index
computed each month by The Bureau of Labor Statistics
using a bundle that is meant to represent the “market
basket” purchased monthly by the typical urban
consumer.

It’s the most popular fixed-weight price index.

The CPI market basket shows how a typical consumer
divides his or her money among various goods and
services.
FIGURE 7.1 The CPI Market Basket
TABLE 7.5 The CPI, 1950–2012
1950
1951
1952
1953
1954
1955
1956
1957
1958
1959
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
Percentage
Change
in CPI
1.3
7.9
1.9
0.8
0.7
-0.4
1.5
3.3
2.8
0.7
1.7
1.0
1.0
1.3
1.3
1.6
2.9
3.1
4.2
5.5
5.7
CPI
24.1
26.0
26.5
26.7
26.9
26.8
27.2
28.1
28.9
29.1
29.6
29.9
30.2
30.6
31.0
31.5
32.4
33.4
34.8
36.7
38.8
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
Percentage
Change
in CPI
4.4
3.2
6.2
11.0
9.1
5.8
6.5
7.6
11.3
13.5
10.3
6.2
3.2
4.3
3.6
1.9
3.6
4.1
4.8
5.4
4.2
CPI
40.5
41.8
44.4
49.3
53.8
56.9
60.6
72.6
65.2
82.4
90.9
96.5
99.6
103.9
107.6
109.6
113.6
118.3
124.0
130.7
136.2
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Percentage
Change
in CPI
3.0
3.0
2.6
2.8
3.0
2.3
1.6
2.2
3.4
2.8
1.6
2.3
2.7
3.4
3.2
2.8
3.9
-0.4
1.7
3.1
2.1
Note: 1982-1984=100
CPI
140.3
144.5
148.2
152.4
156.9
160.5
163.0
166.6
172.2
177.1
179.9
184.0
188.9
195.3
201.6
207.3
215.3
214.5
218.1
224.9
229.6
Calculating the Consumer Price Index
The IGDPDI vs The CPI
Cool Tool: The BLS “Inflation Calculator”

About the CPI inflation calculator: http://www.bls.gov/

The CPI inflation calculator uses the average Consumer Price Index for a given calendar year. This
data represents changes in prices of all goods and services purchased for consumption by urban
households. This index value has been calculated every year since 1913. For the current year, the
latest monthly index value is used.
Why Do We Care So Much About Inflation?








Its potential to change the distribution of income.
Its special effects on debtors & creditors.
The costs of “keeping up” might be self-fulfilling.
Resources (time and money) are used up in the mere
act of posting and keeping up with price changes and
searching for low prices.
Increased likelihood that people don’t know (or can’t
keep up with) changing relative prices, so they don’t
allocate efficiently.
Increased uncertainty, pessimism and risk, perhaps
making people tentative and investment riskier
depresses expenditure on consumption and
investment.
Real Culprit: asymmetric and unanticipated inflation
What about DEFLATION? It’s got its problems, too –
more on that later.
Unemployment
Defining & Measuring Unemployment

Who does it in the U.S.?
–
–

United States Department of Labor, Bureau of Labor Statistics
…is the principal Federal agency responsible for measuring
labor market activity, working conditions, and price changes in
the economy. Its mission is to collect, analyze, and disseminate
essential economic information to support public and private
decision-making. As an independent statistical agency, BLS
serves its diverse user communities by providing products and
services that are objective, timely, accurate, and relevant.
An employed person is any person 16 years old or older
who:
1. works for pay, either for someone else or in his or her own
business for 1 or more hours per week,
2. works without pay for 15 or more hours per week in a family
enterprise, or
3. has a job but has been temporarily absent, with or without pay.
Defining & Measuring Unemployment

An unemployed person is a person 16 years old or
older who:
1.
2.
3.
is not working,
is available for work, and
has made specific efforts to find work during the previous
4 weeks.
NOTE: Persons who were waiting to be recalled to a job
from which they had been laid off need not have been
looking for work to be classified as unemployed.

A person who is not looking for work, either because
he or she does not want a job or has given up looking,
is not in the labor force.
Defining & Measuring Unemployment
labor force = employed + unemployed
population = labor force + not in labor force *
*Included are persons 16 years of age and older residing in the 50 States and the District of
Columbia who are not inmates of institutions (for example, penal and mental facilities,
homes for the aged), and who are not on active duty in the Armed Forces.
unemployed
unemployment rate =
employed + unemployed
labor force
labor force participation rate =
population
Computing Unemployment
 Computing
the unemployment rate for
the month of July 2003:
– Labor force: 141.39 million
– Employed: 133.47 million
– Unemployed: 7.92 million
unemployment rate July 2003
7.92
=
 5.6%
133.47 + 7.92
TABLE 7.1 Employed, Unemployed, and the Labor Force, 1950–2012
(1)
Population
16 Years
Old or Over
(Millions)
(2)
Labor
Force
(Millions)
(3)
(4)
(5)
(6)
Employed
(Millions)
Unemployed
(Millions)
Labor Force
Participation
Rate
(Percentage
Points)
Unemployment
Rate
(Percentage
Points)
1950
105.0
62.2
58.9
3.3
59.2
5.3
1960
117.2
69.6
65.8
3.9
59.4
5.5
1970
137.1
82.8
78.7
4.1
60.4
4.9
1980
167.7
106.9
99.3
7.6
63.8
7.1
1990
189.2
125.8
118.8
7.0
66.5
5.6
2000
212.6
142.6
136.9
5.7
67.1
4.0
2012
243.3
155.0
142.5
12.5
63.7
8.1
Note: Figures are civilian only (military excluded).
TABLE 7.2 Unemployment Rates by Demographic Group, 1982 and 2012
Years
November 1982
December 2012
Total
10.8
7.8
White
9.6
6.9
9.0
8.1
21.3
6.2
6.3
21.6
20.2
14.0
Men
Women
Both sexes
20+
20+
16–19
African American
Men
Women
20+
20+
19.3
16.5
14.0
12.2
Both sexes
16–19
49.5
40.5
TABLE 7.3 Regional Differences in Unemployment, 1975, 1982, 1991, 2003 and 2010
U.S. avg.
Cal.
Fla.
Ill.
Mass.
Mich.
N.J.
N.Y.
N.C.
Ohio
Tex.
1975
8.5
9.9
10.7
7.1
11.2
12.5
10.2
9.5
8.6
9.1
5.6
1982
9.7
9.9
8.2
11.3
7.9
15.5
9.0
8.6
9.0
12.5
6.9
1991
6.7
7.5
7.3
7.1
9.0
9.2
6.6
7.2
5.8
6.4
6.6
2003
6.0
6.7
5.1
6.7
5.8
7.3
5.9
6.3
6.5
6.1
6.8
2010
9.6
12.4
11.5
10.3
8.5
12.5
9.5
8.6
10.6
10.1
8.2
Household Data From bls.gov
Types of Unemployment
 Frictional
unemployment:
the portion of unemployment that is due
to the normal working of the labor
market; used to denote short-run
job/skill matching problems.
Types of Unemployment
 Structural
unemployment:
the portion of unemployment that is due
to changes in the structure of the
economy that result in a significant loss
of jobs in certain industries.
Types of Unemployment
 Cyclical
unemployment:
the increase in unemployment that
occurs during recessions &
depressions.
– Unemployment created during the swings
in the business cycle.
Types of Unemployment
 The
natural rate of unemployment:
the unemployment that occurs as a normal
part of the functioning of the economy.

Sometimes taken as:
natural rate = frictional + structural
Parting Thoughts on Unemployment
 Only
an aggregate average
 Duration/Spells of unemployment
 Trends in labor force participation
 Labor force characteristics
 Under/Over employment
 Discouraged worker
 UI benefits
 Search models and transition rates
There are Many Other V.I.P. MACRO
Indicators

Income and Product Measures, especially across countries
–
–
–
–

Gross National Income
Disposable Income
Personal Income
Median Income
Productivity Measures
– Output per worker hour
– Capital per worker
– Capacity utilization rates

Employment Measures
–
–
–
–

employment
job creation
job destruction
average work week
Final Thoughts
–
–
–
–
Different numbers tell us different things about the big picture.
Be careful how you use them.
They tell us a lot.
They don’t tell us everything.
Interesting(entertaining, even) Listens/Reads

The Audacity of Hopelessness
– http://www.cc.com/video-clips/rxdrv8/the-colbert-report-the-word---theaudacity-of-hopelessness

What's Behind The Rise Of College Tuition?
– http://www.npr.org/2012/02/19/147115868/whats-behind-the-rise-of-collegetuition

UC Students Propose Alternative To Tuition Increases
– http://www.npr.org/2012/02/07/146479925/uc-students-propose-alternativeto-tuition-increases
– “Under our proposal, students would pay 5 percent of their income for 20
years" following graduation, Locacio says.

The 40 Most Unusual Economic Indicators
– http://www.businessinsider.com/40-most-unusual-economic-indicators-20132#the-first-date-indicator-1

Action chart; For whom the jobs toll; The new way of post-recession
unemployment in America (very cool set of charts)
– http://www.economist.com/node/21620337
i>clicker questions
Consider the fictional economy of Vinopolis that uses the Vinopolis $dollar as its
currency. Vinopolis’ only final output is wine. In 2009 farmers in Vinopolis sold all
their grapes, $5,000 worth, to local vineyards. The local vineyards used all these
grapes and a variety of other inputs to make wine which sold to all the local retail
wine stores for a total of $25,000. The local wine stores shelved and sold all the
wine made in 2009 in 2009. Total wine sales to final consumers equaled
$50,000. Of this $50,000, half the wine was sold to people who are ordinary
citizens of Vinopolis and half of the wine was sold to foreign tourists visiting
Vinopolis.
This would be
Vinopolis GDP in 2009 is
A.
B.
C.
D.
E.
$25,000
$50,000
$5,000
$25,000
$75,000
A.
B.
Real GDP
Current GDP
Suppose the bureaucrats of
Vinopolis report that real 2009
GDP for Vinopolis is $40,000 (the
base year is 2005 for Vinopolis).
What is the implicit GDP deflator
index for Vinopolis for 2009?
A.
B.
C.
D.
E.
100
25
125
1.25
80
Suppose citizens in Vinopolis
consume imported cheese.
Suppose in 2005 a pound of
imported cheese sold for
$5/pound. In 2009 imported
cheese is selling for $10/pound.
How does this change our GDP
numbers?
A.
B.
C.
D.
Who know?
GDP stays the same.
GDP will fall.
GDP will rise.
END OF MATERIAL FOR
PRELIM 1
 WHEW!!

HINTS:
– DON’T pull an “all-nighter”.
– READ questions carefully. Highlight or underline each important piece of information.
– For the multiple choice: Cover up all the answers and “do” the problem based on the
narrative first, then your work will lead you to the correct answer.
– For “work” problem: Draw graphs big enough and carefully enough to make it so they
can “show” you the way.
» Always label BOTH axes right away, it helps remind you of what goes where and what you
are doing.
» Label any items you put into the graph (like D for demand and S for supply).
» Use a contrasting color to help see things.
» TRY each problem – at least do something so there is some chance that you might get partial
credit for what you did.
» Don’t spin your wheels too long on any one problem. Give it your best shot, then move on,
then go back to it if there is time.