Lecture 10:Deficits and Unemployment

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Lecture 10Deficits and Unemployment

• Deficits
• Measures of Well-Being
• unemployment
• inflation
• Link back to Lecture 9

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Government Budget and International Deficits
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Deficits

• An international deficit exists if our imports
  exceed our exports.
• Current Account
• Our exports minus our imports but it also takes
  interest payment paid to and received from the
  rest of the world into account.

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Government Budget and International Deficits
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Do Deficits Matter?

• Governments must borrow if it spends more than it
  earns in tax revenue.
• If the borrowed funds are used to purchase assets
  that earn a profit, the investment may be sound.

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Macroeconomic Policy Challenges and Tools

• Policy Challenges
• 1) Boost economic growth
• 2) Stabilize the business cycle
• 3) Reduce unemployment
• 4) Keep inflation low
• 5) Reduce the government and international
  deficits

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Macroeconomic Policy Challenges and Tools

• Policy Tools
• 1) Fiscal policy
• Making changes in taxes and government spending
• Long term growth
• Smooth the business cycle

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Macroeconomic Policy Challenges and Tools

• Policy Tools
• 2) Monetary policy
• Changing interest rates and the amount of money
  in the economy
• Control inflation
• Smooth business cycle

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Jobs and Unemployment

• Jobs
• In 1996, 127 million people had jobs.
• An increase of 20 million over 1985 and 23
  million over 1975
• On average, 1.8 million new jobs are created
  every year

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Jobs and Unemployment

• The type of job you will get when you graduate
  will depend, to some degree, on
• the total number of jobs available
• the unemployment rate
• what is the unemployment rate today?
• ck out todays WSJ

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Unemployment

• Unemployment is a condition in which there are
  qualified workers who are available for work at
  the current wage rate and who do not have jobs.
• To be counted as unemployed, a person must have
  made some effort to find a job during the
  previous four weeks.

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The Labor Force and the Unemployment Rate

• Unemployment plus employment equals the labor
  force.
• The unemployment rate is the percentage of the
  labor force that cannot find work.

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Part-Time Workers

• Part-time workers are counted as employed.
  However, some part-time workers would accept a
  full-time job if one were available.
• This group should be counted as partially
  employed. They are counted as fully employed by
  the Bureau of Labor Statistics.

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Unemployment inthe United States

• None of our recent experiences with high
  unemployment come close to the peak of 25
  unemployment experienced at the depths of the
  Great Depression (1933).
• In recent years, the United States has
  experienced periods of high unemployment.

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Unemployment Around the World

• Since 1980, the U.S. unemployment rate has
  averaged 7 percent, compared with 8.1 percent in
  Europe and 2.5 percent in Japan.
• U.S. unemployment fluctuates with the business
  cycle.
• Japanese unemployment barely fluctuates at all.
• European unemployment has been rising sharply.

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Why UnemploymentIs a Problem

• The value of training and education may be
  significantly reduced if people cant find
  entry-level jobs.
• Higher unemployment rates are statistically
  associated with higher rates of crime,
  alcoholism, depression, suicide, and domestic
  violence.
• The unemployed lose self-esteem.

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Jobs and Unemployment

• Unemployment
• On average, 7 million people are unemployed in
  the U.S.
• Unemployed worker
• One who does not have a job but is available for
  work, is willing to work, and has made some
  effort to find work within the previous four weeks

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Jobs and Unemployment

• Labor Force
• Sum of the people who are unemployed and the
  people who are employed
• Unemployment Rate
• The percentage of the labor force who are
  unemployed

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Jobs and Unemployment

• Discouraged Worker
• A person who does not have a job, is available
  for work, and is willing to work but who has
  given up the effort to find work

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Jobs and Unemployment

• The unemployment rate may be misleading because
• Discouraged workers are excluded
• Part-time workers who want full-time jobs are
  considered employed

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Unemployment in theUnited States

• Important Features
• 1) The unemployment rate during the
  Depression peaked in 1933 at 25.
• 2) After 1934, the unemployment rate
  overstated the true rate because it counts the
  people who had make-work jobs.

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Unemployment in theUnited States

• Important Features
• 3) Unemployment rates have reached high levels
  in recent years during recessions.
• 4) The unemployment rate never falls to zero.

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Unemployment in theUnited States
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Unemployment inIndustrial Economies
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Why Unemploymentis a Problem

• Lost Production and Incomes
• Lost Human Capital
• Prolonged unemployment can hurt a persons job
  prospects.