1. Chapter 6 homework Questions 6, 10, 14, and 16

2. Chapter 7 Unemployment and Employment

3. Theory in Action… http://news.yahoo.com/s/afp/20070221/ts_alt_afp/usjapanautoco mpany_070221002126;_ylt=AmGijEzozUCCr8_ei2B8UdrlyREB Nissan Offers Voluntary Layoffs at Tennessee Plants Applied Topics: Derived demand, determinants of the demand for labor, production function http://news.yahoo.com/s/afp/20070221/ts_alt_afp/usjapanautoco mpany_070221002126;_ylt=AmGijEzozUCCr8_ei2B8UdrlyREB The article examines Nissan's recent offer to workers. Questions: How is Nissan's offer to its workers for "buyouts" related to the concept of derived demand? How is it possible that the productivity of Nissan's workers has increased but that the demand for labor at Nissan has decreased? (Hint: Is the production function the same for the new mix of vehicles to be produced this year as compared to 2006?)

4. Individuals Overlooked by the Unemployment Rate Discouraged workers  Withdrawn from the labor force because of poor job prospects, or to pursue alternative activities. Underemployed workers  Work fewer hours than they would like, or have jobs for which they are over-qualified. Illegal aliens  Work, but try not to be detected.

5. Types of Unemployment Frictional Unemployment  It takes time to match job openings with the workers willing to take them Generally doesn’t last long, so few resources are directed at dealing with it. Most policy takes the form of providing information to employers and job seekers. Has declined with better job postings, internet, e-mail…

6. Types of Unemployment (cont’d) Seasonal Unemployment  Periodic rise and fall of unemployment with the seasons of the year Unemployment rates are adjusted for seasonal unemployment.

7. Types of Unemployment (cont’d) Structural Unemployment  Workers lack jobs because of a permanent mismatch of skills. Usually the result of a change in the structure of the economy. The government often tries to retrain structurally displaced workers.  Provide re-training programs

8. Types of Unemployment (cont’d) Cyclical Unemployment  Broad downturn in economic activity. Government tries to fight with policies aimed at promoting economic growth and minimizing fluctuations in economic activity.

9. The Meaning of Full Employment It is unlikely that the unemployment rate will be zero percent in a market- based economy. Even after we account for seasonal unemployment, there will still be both frictional and structural unemployment.

10. The Meaning of Full Employment (cont’d) The economy reaches full employment when cyclical unemployment has been eliminated.  Does not mean that everyone that wants a job can find one!

11. The Meaning of Full Employment (cont’d) Economist believe that between 4% and 5% of the U.S. labor force is frictionally or structurally unemployed. Full employment unemployment rate lies between 4% and 5%.  Where are we now?? 4.7% in August 2006

12. Full Employment rates have changed During the 1970s and 80s, more women and baby boomers entered the labor market, causing more ___________unemployment.  frictional The decline of the U.S. auto industry in the 1970s and 80s lead to more _________ unemployment.  structural In the 1990s, fewer people entered the labor force (smaller population changes), reducing _________unemployment.  frictional

13. Why Unemployment is Not Always Bad Structural unemployment could be from technological advances  Create new jobs based on the new technology. Creation of typewriter put copyists out of work; the creation of the computer put typists out of work Frictional unemployment may also serve a broader social purpose.  Can lead to better employment matches, higher pay for the worker and greater output for society.  Look longer  may find a better job