1. UNEMPLOYMENT INTEREST RATES

2. Identifying Unemployment
Total population
Working Age
Non-working Age
Working age population
total number of people aged 16 years and over who are not in a jail, hospital, or some other form of institutional care, or in the army.
Non-Working Age Population
Total number of people under 16 years of age, living in institutions, or in the military

3. Identifying Unemployment
The working-age population
those in the labor force
those not in the labor force.
Labour force
Number employed
Number unemployed

4. Identifying Unemployment
Survey Criteria for a nationally representative subset of the population
employed: all persons who, during the week before the survey:
Worked at least 1 hour in a paid job or 15 hours unpaid in family business.
Were not working but who had jobs from which they were temporarily absent.
E.g. maternity leave, sick leave, etc

5. Identifying Unemployment
Unemployed: all persons who, during the week before the survey:
Had no employment
Were available for work and either:
Had made efforts to find employment during the previous four weeks, or
Were waiting to be recalled to a job from which they had been laid off.
Perhaps the most difficult point in this chapter to get across to students is explaining the difference between the layperson’s definition of unemployment and unemployment as measured by the Bureau of Labor Statistics. The layperson typically considers anyone who is not working as unemployed. It is worth reemphasizing that a person is only considered officially unemployed if the person is not working but also is actively seeking employment. Here is a good opportunity to ask students a direct question to which they will happily provide several answers. Why might someone be not working and not looking for work? Students will no doubt point to some of the most obvious answers: full‐time student, homemaker, retired etc.

6. How Employment Status is Measured
Yes
Worked one or more hours for pay?
Employed No
Yes
Temporary lay off?
Unemployed No
Searched for work?
Yes
Unemployed No
Not in the Labour force

7. Identifying Unemployment
Two Main Labor Market Indicators
The unemployment rate
The labor force participation rate
Unemployment is an emotionally charged subject and is a good one for reinforcing the important point that economics is positive in contrast to normative. Economists do not make normative judgments as to whether unemployment is good or bad; rather they explain why unemployment exists and what determines its rate.
Some students mistakenly compute the unemployment rate as the number unemployed divided by the number employed. Make sure to explain that economists consider the labor force to include not only those who are employed but also those who are unemployed and looking for work.

8. Identifying Unemployment
Unemployment rate
Percentage of labor force that is without a job

9. Identifying Unemployment
Labor-force participation rate
Labour force refers to the number of people in the population who have a job, or are looking for one
Percentage of the total adult population that is in the labor force
Fraction of the population that has chosen to participate in the labor market

10. Identifying Unemployment
Alternative Measures of Unemployment
The official definition of unemployment omits two types of labor:
Marginally attached workers
Part-time workers

11. Identifying Unemployment
A marginally attached worker is a person who does not have a job, is available and willing to work, has not made specific efforts to find a job within the previous four weeks, but has looked for work sometime in the recent past.
Discouraged worker is a marginally attached worker who has not made specific efforts to find a job within the previous four weeks because previous unsuccessful attempts were discouraging.

12. Identifying Unemployment
Part-Time Workers
Full-time workers are people who usually work 35 hours or more a week.
Part-time workers are people who usually work less than 35 hours a week.
Part-time for economic reasons are people who work 1 to 34 hours per week but are looking for full-time work. (Also called involuntary part-time workers)

13. Problems in Measuring Unemployment
Treatments of
Involuntary part-time workers
Discouraged workers

14. Problems in Measuring Unemployment
Involuntary part-time workers
May want to work more hours
Classification into ‘employed’ category understates unemployment problem

15. Problems in Measuring Unemployment
Discouraged workers
Would like to work
Given up looking for work
Classified as ‘not in the labour force’, instead of ‘unemployed’
Effect on the measurement of the unemployment rate?
Include or not include in the measure of unemployment rate?

16. Frictional Unemployment Seasonal Unemployment Structural Unemployment
Types of Unemployment
Frictional Unemployment
Seasonal Unemployment
Structural Unemployment
Cyclical Unemployment

17. Frictional Unemployment
Short-term unemployment
People who are between jobs
Entering for the first time
Re-entering after period of absence
Not so critical
Use up savings
Borrow from relatives, friends, etc
Benefits of Frictional unemployment?

18. Frictional Unemployment
Benefits of frictional unemployment?
Find better-suited jobs
Higher incomes
Firms have more productive workers
Society has more goods and services

19. Seasonal Unemployment
Short-term joblessness related to:
Weather
Tourist patterns
Not so critical
Workers typically compensated for off-season
Predictable
Complicates interpretation of unemployment data

20. Structural Unemployment
Mismatch between job-seekers and employers
Skills
Geography
Long-term problem
Why?

21. Structural Unemployment
Why is Structural Unemployment a long-term phenomenon?
Takes time to learn required skill
Relocate to another part of country

22. Cyclical Unemployment
This refers to the joblessness that arises from changes in production over the business cycle
Occurs when economy goes into recession and total output falls
Most critical type of unemployment
Requires macroeconomic policy intervention
Full employment when cyclical unemployment= zero
Even if frictional, seasonal and structural unemployment exists

23. Costs of Unemployment
Economic costs
Broader costs

24. Economic costs of Unemployment
What are some economic costs of unemployment?

25. Economic Costs of Unemployment
Lost Output and incomes
Borne mostly by unemployed
May be borne by employed also if government taxes incomes of employed populations to cater for unemployed.

26. Broader costs of Unemployment
Examples of broader costs of unemployment?

27. Broader costs of unemployment
Psychological effects
suicides, psychiatric episodes, depression
Health effects
High blood pressure, troubled sleep
Physical effects
Domestic violence, alcoholism
Setbacks in achieving social goals
Fairness and equality

28. In-class exercise
Classify each of the following as employed, not employed or not in the labour force
1. Steve worked 40 hours last week in an office supply store.
2. Last week, Elizabeth worked 10 hours as a computer programmer for the National Video Company and attended night classes at the local college. She would prefer a full-time job.
3. Roger lost his job at the R-gone Manufacturing Company. Since then he has been trying to find a job at other local factories.
4. Linda is a homemaker. Last week she was occupied with her normal household chores. She neither held a job nor looked for a job.
5. Linda’s father is unable to work
6. Scott has a Ph.D. He worked full-time but does not like his job as a dishwasher. He has applied for jobs with three companies and five universities. As soon as he gets an offer, he will quit his current job.
7. Mary-Helen has been out of work for a full year. She would take a job if it was offered, but no local companies are hiring. She is not actively searching for work.

29. Take-Home Exercise
Use the table below to answer the ensuing questions.
How large is the labour force?
How many discouraged workers live in this economy?
How many of the citizens are not in the labour force?
Compute the unemployment rate
Population
60,000
Under 16
9000
Over 16
In military service
600
In hospitals 60
In prison
200
Worked one hr or more in previous week
46000
Searched for work during previous month
2140
Did not work in previous week, did not look for work, but would have taken a job if one was offered

30. The Interest rate Definition Types Effects on businesses and economy
nominal versus real
Effects on businesses and economy

31. Real and Nominal Interest rates
Interest is the payment made by individuals, firms and businesses for the use of money
Cost of borrowing money
When an individual deposits money in a bank in the present, the bank returns that money sometime in the future, with interest
Future GHCs may however have a different value from current GHCs

32. Scenario Ama puts Ghc1000 in the bank at beginning of the year
Receives Ghc1100 at end of year...
Annual rate of interest= 10%
Is Ama richer?

33. Scenario Depends on what her money can buy!
Changes in price level
Suppose Ama at the beginning of year could buy GTP cloth at Ghc10 per yard
Her Ghc1000 was equivalent to 100 yards
Is she richer?
Depends on price of GTP cloth

34. Scenario Zero inflation 6% inflation 10% inflation 12% inflation
If price remains at Ghc10, can buy 110 yards at end of year
6% inflation
If price of GTP cloth is Ghc10.60, she can buy 104 yards
10% inflation
If price rises from Ghc10 to Ghc11, she can buy same 100 units
12% inflation
If prices rise to Ghc11.20, she can only buy 98 yards

35. Scenario What if prices fall by 2%? Deflation Price is now Ghc9.80
Increase in her purchasing power from 100 to 112

36. Real and Nominal Interest Rates
Interest rate as usually reported
Without a correction for the effects of inflation
Real interest rate
Interest rate corrected for the effects of inflation
= Nominal interest rate – Inflation rate

37. Scenario Nominal Interest rate Inflation rate Real Interest rate 10%
Purchasing power increased 6% 4%
No change in purchasing power
12%
-2%
Purchasing power decreased

38. Nominal and real interest rate
The nominal interest rate tells you how fast the number of dollars in your bank account rises over time
The real interest rate tells you how fast the purchasing power of your bank account rises over time.

39. Interest rates Nominal interest rate
Always exceeds the real interest rate, in practice
Exception?
Economies often experience rising consumer price levels in every year

40. Discussion Question
When deciding how much of their income to save for retirement, should workers consider the real or the nominal interest rate that their savings will earn?

41. Next Class Dr Bekoe takes over with remainder of semester
IA set for 19th March at 12pm at (Venue to be determined)
Format
Multiple Choice Questions
Scope
Lectures Weeks 1-6