Unemployment/Inflation Chapter 13

Breakdown of Total U.S. Population by Employment Status Total Population Persons under 16 Persons in the armed forces Persons institutionalized Non-institutional adult civilian population Not in labor forceCivilian labor force EmployedUnemployed Civilian Labor Force: People 16 yrs or older either employed or actively seeking employment

If Under 16, your rights depend. For example: If you are under 16 you are only allowed to: deliver newspapers to customers; babysit on a casual basis; work as an actor or performer in movies, TV, radio, or theater; work as a homeworker gathering evergreens and making evergreen wreaths; and work for a business owned entirely by your parents as long as it is not in mining, manufacturing, or any of the 17 hazardous occupations. There are different rules for children under age 14 working in agriculture. States also have rules, and employers must follow both.

One Economic Indicator Economists measure how healthy the economy is at any given time by counting the number of people who are unemployed.

Unemployment Rate Percentage of civilian labor force that is unemployed Individuals who are actively looking for a job but work less than 1 hour per week for pay or profit Does not include people who are underemployed, working part time, or have given up the job search Government takes monthly surveys to measure the unemployment rate

Full Employment Even in an economy that is working properly, economists expect some unemployment. An unemployment rate of 4% or lower is considered full employment. However, some people with jobs could be underemployed (they work part-time but want full) Idaho unemployment rate: Oct. 2014: 4.1% March 2014: 5.2% U.S. unemployment rate: Oct. 2014: 5.8% March 2014: 6.7%

Unemployment Insurance: Who Pays? Way of tracking unemployment in U.S. Not public assistance: Paid for by employers through state and federal taxes. These taxes fluctuate depending on how much former workers collect. Insurance is also dependent on type of work done (contractor vs. employee)

Filing for Unemployment in Idaho Automated system Two qualifications: 1.Personal eligibility ◦ Lost job through no fault of your own ◦ Physically able and willing to accept work 2. Monetary requirements ◦ May not qualify if self employed ◦ Calculated by the first 4 of the last 5 quarters worked before claim EX: $28,000 per year would make one eligible for $275/week for 26 weeks

Filing for Unemployment: Some Rules Must contact employers in your labor market (2 per week at least), and keep records of contact. You cannot refuse work You must report all earnings for the week you worked Report holiday, overtime, bonus, severance, and vacation pay Stop reporting earnings if you get full time Failure to follow these and others could lead to fraud.

Types of Unemployment Frictional Seasonal Technological Structural Cyclical

Frictional Unemployment People take time to find a job ◦ Get laid off, take time to find right job ◦ Graduate from high school or college ◦ Looking for a new job ◦ Left job to take care of a parent, coming back

Seasonal Unemployment Unemployment that occurs as a result of harvest schedules or vacations Industries slow down or shut down due to cold weather ◦ Summer Job – Boondocks ◦ Winter Jobs - Bogus

Technological Unemployment Automation makes some workers skills obsolete

Structural Unemployment Worker’s skills do not match the jobs that are available ◦ Need skills to success ◦ Move from farming to manufacturing ◦ Manufacturing to service ◦ Takes time to retrain

Cyclical Unemployment In economic downturns people are laid off because there is a surplus of inventories and no demand

Unemployment can cause uncertainly, political instability, and social problems

Inflation

What is Inflation? Another important economic indicator An increase in the price level, or the average level of prices The same amount of money buys less Current Inflation 1.98% (Apr. 2012)

How Do We Measure Inflation? Economists use price indexes If price indexes increase from year to year: inflation 1. CPI (Consumer Price Index): most commonly used inflation measure ◦ BLS measures the price of a standard group of goods meant to represent the “market basket” of a typical urban customer ◦ Watching from year to year helps determine the inflation rate (% change in prices over time) 2. PPI (Producer Price Index): measures of the cost of a basket of goods bought by firms.

Three Causes of Inflation 1. Quantity theory: Too much money in the economy chasing too few goods 2. Demand Pull (Demand side): Demand for goods and services exceeds supply Growing economy: people spending more money Expectation of Inflation: Buy now before inflation hits Strong brand: Good Marketing Technological Innovations: I-Phone

3. Cost Push (Supply-side): Producers raise prices to meet increased costs for labor/raw materials. Happens with inelastic products. ◦ Monopoly/Oligopoly: OPEC and Oil/Gasoline ◦ Wage Inflation: An increase in wage demand forces firms to raise prices to cover cost of production. ◦ Natural Disasters/ Lack of Resources: Driven by Scarcity. Ex: Japanese earthquake/auto parts, Hurricane Katrina/Gas prices ◦ Government Regulation and Taxation: Government regulations can reduce the supply of certain products. Shift in Exchange

Affects of Inflation Reduces purchasing power People on fixed incomes, such as social security, unemployment, and investment proceeds (CD’s, preferred stock dividends) are negatively effected. The greater the inflation rate, interest earned on savings loses value – can buy less with the money you have If you have a long-term contract - eats up profits over time.

Deflation A decline in the price level, or average level of prices A downward change in the CPI indicates deflation PROBLEMS: ◦ When prices do not fall at the same time, some firms go out of business or lay off workers ◦ People stop spending; waiting for prices to fall ◦ Wages as well as prices have to fall

Hyperinflation Inflation that exceeds 50% per month The value of money decreases quickly CAUSES: Government needs to pay for government services but does not want to raise taxes, so they print more money People immediately convert money to goods and services because they are worth more

Examples of Hyperinflation U.S. (1918): 20.4% - booming economy after WWI Germany ( ): 29,500% monthly inflation. 4.2 trillion Marks = 1 USD. Economic crisis helped rise Hitler to power Greece ( ): 13,800% peak in 1944, with daily inflation at 20.9% Hungary ( ): 207% daily inflation. 100 Quintillion denominations were used Yugoslavia ( ): 313,000,000% monthly and 64.6% daily inflation. Zimbabwe (2000 – 09): 516 quintillion % inflation per month.