Economic Challenges

Types of Unemployment Frictional- time required to bring labor and employer together Structural-job seekers don’t have skills demanded Seasonal- unemployment caused by seasonal change Cyclical- increase in unemployment due to recession Full Employment- no cyclical unemployment, 5-6% unemployed

Unemployment estimates Problems with Official Unemployment estimates Discouraged workers- not counted in unemployment Underemployment- people in part time jobs, or overqualified Underground economy- under table

The Cost and measure of Unemployment Unemployment rate-people without jobs looking for work number in labor force Labor force- those in labor force or looking for work Unemployment for various groups

Unemployment benefits Paid if you lost job –average $310 a week Must be searching for work not from quitting or being justly fired

Inflation Basics Inflation- increase in economy's average price level Types of Inflation Hyperinflation- high inflation Disinflation- reduce rate of inflation Deflation- decrease in price level Reduces the value of currency

Economic Instability-pre great depression Adam Smith Wealth of Nation 1776 Laissez-faire Hands off economics- government should not intervene Invisible hand of the economy Economy self correcting

Economic Instability- Great Depression to 1970s John Maynard Keynes The General Theory of Employment, Interest, and Money 1936 Investment decisions guided by “animal spirit” Government shock economy out of depression Achieved by government increasing spending and/or cutting taxes to stimulate consumption and investment Both could cause deficit Stop doing these once economy back to normal Demand side economics

Economic Instability- 1981-2007 Supply side economics Cutting tax rates to stimulate supply side Federal deficit Taxes raised deficit reduced Surplus 1998

Economic Instability Stimulus 2008 Stimulus packages

Poverty and the Economy Poverty and Jobs No workers in family increase chance Single mothers 14times greater chance Poverty and unemployment Lower unemployment rate, lower poverty rate

Unplanned Results of Income assistance Children largest group in poverty Why work? Assistance only given to poor Assistance taken away as earnings increase ( at a 1 to 1 scale) Also taxes when working for money Long-Term dependency Skills weaken the longer one is out of work Cycle of poverty Children in welfare families grow up and end up being on welfare themselves Viewed sometimes as normal way of life (but other reasons can lead to this also)

Welfare Reforms Overhaul of welfare system 1996 Lifetime limit of 5 years per recipient Must participate in training/ educational program Must search for work or take unpaid position Retain some benefits to transition off of it (increase incentive) Earned income tax credit Welfare recipients fell from 5.5% in 1994 to 1.4% in 2010