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saklviTüal½y) at;dMbg m:aRkU esdækic © ]eTÞsnam eday ³ sa®sþacarübNÐit eQOt XunlaP muxviC¢ a ³ bNÐitEpñk ³ esdækic©GnþrCati bBa©b;fñak;bNÐit BIsaklviTüal½yPUmiPaKxagt,Úg énRbeTsrusSIú
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EpñkTI1³ TsSnTansþIGMBIm:aRk Uesdækic© Lecturer: CHHOEUT KHUNLEAP CMBUkTI1³ buBVkfasþIGMBIm:aRk Uesdækic© m:aRkU esdækic ©
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Baküfa “ viTüasa®sþm:aRkUesdækic© ” )ankekIteLIgenAkñúgTsSvtSTI30 énstvTSTI20 EdlmUlehtubNþalmkGMBI karFøak;cuHénesdækic©BiPBelakenAkñúgq ñaM1929. GaRs½yeday ehtudUcenHehIy eTIbCMrujeGaymankarsikSaGMBI m:aRkUesdækic©. viTüasa®sþesdækic© epþatelIeKalneya)ayrdæaPi)al EdlCab;Bak;B½n§eTAnwg Out put GnikmµPaB GtiprNa GRtabþÚrR)ak; éføsrub GRtakarR)ak; GRtaR)ak;ebovtS nig plitplsrub kñúgesdækic©. ktþaTaMgGs;enHKWsuT§EtCadMeNaHRsay edIm,IeGaymannUvesßrPaBm:aRkUesdæki c© dMeNIrkar nig kar eGaymannUv karekIneLIgénsuxumalPaBrbs;RbCaCn. beRgoneday³ sa®sþacarü eQOt XunlaP CMBUkTI1³ buBVkfasþIGMBIm:aRkUesdæk ic©
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1> RbB½n§KNnICati RbB½n§KNnICati KWCaRkbx½NÐKNnI sMrab;RbmUlTinñn½yma:RkUesdækic© nig viPaKesdækic© eTAtamsþg;darGnþrCati enAkñúgeKaledA edIm,IbgáeGaymanlkçN³gayRsYlkñúgkareRb obeFob nigviPaKkMriténdMeNIrkar nig GPivDÆesdækic©. RbB½n§KNnICati EbgEckCa2sMxan;² nig taragtulükar KW 1> KNnIcrnþ ³ manBIrKW KNnIplitkmµ nig KNnIR)ak;cMnUl. 2> KNnIRbmUlpþúM ³ kt;RtanUvkarTij nig karlk;RTBüskmµhirBaØvtßúnigminEmnhirBa Øvtßú. KNnIRbmUlpþúMrYmman³ KNnImUlFn KNnIhirBaØvtßú nig KNnIEbbbERmbMrYlénKNnI RTBüskmµ. CMBUkTI1³ buBVkfasþIGMBIm:aRkUesdæk ic© beRgoneday³ sa®sþacarü eQOt XunlaP
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3> taragtulükar³ kt;RtanUvtémøénsnñiFIRTBüskmµ nig RTBüGkmµ edImRKanigcugRKa. TaMgGs;enH)anerobcMeLIgsMrab;tYGgÁ dUcCa ³>>>>>>>>>>>> 1>1 vis½yesdækic©sMxan;² eKhCn ³ pÁtpÁg;dI Blkmµ nig mUlFn sMrab;TIpSarktþaplitkmµepSg² EteKk¾GacCaplitkr pgEdrenAkñúgshRKaspÞal;xøÜn ehIyBYkeKmansiT§isMxan;enAkñúgkarKit fa etIRtUvcMNayb:unµan? Tuk;sBa¢½ynigvinieyaKb:unµan? edayQrelImUldæanxøI nig karrMBwgeTAGnaKt;. shRKas ³ eRbIR)as;nUvktþaplitkmµdUcCa dI Blkmµ nig mUlFn edIm,ICMrujeGay)anR)ak; cMenjGtibrma. vis½yhirBaØvtßú ³ pþl;nUvesvaGnþrkarIykmµhirBaØvtßúsMr ab;esdækic©Cati rYmman FnaKar nig sßab½n hirBaØvtßú. CMBUkTI1³ buBVkfasþIGMBIm:aRkUesdæk ic© beRgoneday³ sa®sþacarü eQOt XunlaP
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rdæaPi)al ³ mantYnaTIbegáItnUvRkbx½NÐKtiyutþi pþl;esvasaFarN³dUcCa Gb;rM suxaPi)al ehdæa rcnasm<½n§ mUlniFisnþisuxsgÁm RKb;RKgTinñn½ysareBIBn§ nigRbB½n§cMnaysaFarN³. vis½yGnþrCati ³ pSarP¢ab;esdækic©CatieTAnwgbreTs nig RbB½n§GnþrCati. 1>2 sUcnakrm:aRkUesdækic©sMxan;² plitplsrub ³ KWCatémøénTMnij nig esvaTaMgGs; Edlplitedayesdækic©TaMgmUl. témøbEnßm ³ KWCatémøénplitplsrub dkecjnUvtémøénkareRbIR)as;Gnþrkal. kareRbIR)as; ³ RtUv)anEbgEckCa2 KW 1 kareRbIR)as;Gnþrkal 2 kareRbIR)as;cugeRkay CMBUkTI1³ buBVkfasþIGMBIm:aRkUesdæk ic© beRgoneday³ sa®sþacarü eQOt XunlaP
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plitplsrubkñúgRsuk ³ KWCakarbUkbBa©ÚlKña nUvtémøbEnßmTaMgGs;énesdækic©Cati. karvinieyaK ³ KWCakarbUkbBa©ÚlKñanUvsþúkrUbiy énmUlFnenAkñúgvis½yesdækic©. müa:gvijeTot eyIgGacdwgfa vaKWCaplitplenAkñúgqñaMbc©úb,nñ EtminEmnsRmab;eRbIR)as;enAkñúgqña MenHeT. cMeBaHkarvinieyaKenAkñúgvis½yesdæki c©mandUcCa ³ karpliteRKOgcRk eragcRk pÞHsMEbg nig karERb®bYlelIbBa¢IsareBIP½NÐ bu:Enþ karTijsBaØab½NÑb¤TijmUlbRt minEmnCakarvinieyaK kñúg Gtßn½yCam:aRkUesdækic©eLIy BIeRBaHEt vaminqøúHbBa©aMgGMBI karepÞrnUvRTBüskmµhirBaØvtßú. rMls; = karvinieyaKdul ÷ karvinieyaKsuT§. smtßPaBRsUb b¤ tRmUvkarsrubkñúgRsuk = C + I. CMBUkTI1³ buBVkfasþIGMBIm:aRkUesdæk ic© beRgoneday³ sa®sþacarü eQOt XunlaP
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2> plitplsrubkñúgRsuk eyIgGacKNnaplitplkñúgRsuksrubtamviFIs a®sþ3rebobKW viFIsa®sþplitkmµ viFIsa®sþcMnUl nig viFIsa®sþcMnay. 2>1 viFIsa®sþplitkmµ GDP= Σ VA, VA CaplbUkéntémøbEnßmeTAelIRKb;vis½yT aMgGs;énesdækic©. NDP= GDP-D 2>2 viFIsa®sþcMNay GDP = C + I + (X-M) CMBUkTI1³ buBVkfasþIGMBIm:aRkUesdæk ic© beRgoneday³ sa®sþacarü eQOt XunlaP
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2>3 viFIsa®sþcMNUl GDP= W + OS + TPS W ³ R)ak;ebovtSr_ OS ³ R)ak;cMenjRbtibtþikarN_dul ¬R)ak;cMenj éføQñÜl karR)ak; nig rMls;¦. TPS ³ Bn§ - kar]btßmÖFnelIplitpl. 3>plitplkñúgRsuksrub taméføTIpSar nig éføefr plitplkñúgRsuksrub eFVIkarvas;EvgnUvtémøFatuecjénesd ækic© tamc,ab;Cak;Esþg. plitplkñúgRsuktamtémøefr eFVIkarvas;EvgnUvtémøénFatuecjesd ækic© taméføefrénqñaMeKal. CMBUkTI1³ buBVkfasþIGMBIm:aRkUesdæk ic© beRgoneday³ sa®sþacarü eQOt XunlaP
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briprNa (GDP Deflator) - plitplsrubkñúgRsuktaméføTIpSar = -plitplkñúgRsuktaméføefr = -briprNa = CMBUkTI1³ buBVkfasþIGMBIm:aRkUesdæk ic© plitplsrubtaméføTIpSar briprNa 100 plitplsrubtaméføefr briprNa 100 plitplsrubtaméføTIp Sar plitplsrubkñúgéføefr 10 0 beRgoneday³ sa®sþacarü eQOt XunlaP
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4>1 R)ak;cMnUldul GNI = GDP - Y t Y t CaR)ak;cMnUlsuT§BiktþaplitkmµbreTs 4>2 R)ak;cMnUlCatidulEdl)anmkGMBIkareR bIR)as; GNDI = GNI- TR f TR f CakarepÞrcrnþsuT§BIbreTs 4>3 sBa¢½ydulrbs;Cati S = GNDI + C CMBUkTI1³ buBVkfasþIGMBIm:aRkUesdæk ic© beRgoneday³ sa®sþacarü eQOt XunlaP
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GDP= C + I + (X-M) = A + (X-M) GNI= GDP + Y t = C +I +(X-M) + Y t GNDI= GDP + TR f = C+ I + (X-M)+ Y t + TR f GNDI - C = S GNDI - C = I + (X-M) + Y t + TR f = S S - I = (X-M) +Y t + TR f = CAB = tulüPaBKNnIcrnþénCBa¢IgTUTat; sUcnakr cMNUlnigcMNay sMxan;² beRgoneday³ sa®sþacarü eQOt XunlaP
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MEASURING THE COST OF LIVING In this chapter, look for the answers to these questions: What is the Consumer Price Index (CPI)? How is CPI calculated? What’s it used for? What are the problems with the CPI? How serious are they? How does the CPI differ from the GDP deflator? How can we use the CPI to compare dollar amounts from different years? Why would we want to do this, anyway? How can we correct interest rates for inflation?
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The Consumer Price Index (CPI) Measures the typical consumer’s cost of living. CPI is used as the basis of Cost of Living Adjustments (COLAs) in many contracts and in Social Security. COLA is an adjustment made to a salary structure to account for the change in CPI. COLA adjustments are then made to individual employee salaries based on company policy and are typically granted to employees as "general salary increases".
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How the CPI Is Calculated 1.Fix the “basket.” The Bureau of Labor Statistics (BLS) surveys consumers to determine what’s in the typical consumer’s “shopping basket.” 2.Find the prices. The BLS collects data on the prices of all the goods in the basket. 3.Compute the basket’s cost. Use the prices to compute the total cost of the basket.
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How the CPI Is Calculated (Continued) 4.Choose a base year and compute the index. The CPI in any year equals: 5.Compute the inflation rate: The percentage change in the CPI from the preceding period. CPI =100 x cost of basket in current year cost of basket in base year CPI this year – CPI last year CPI last year inflation rate x 100% =
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EXAMPLE $12 x 4 + $3 x 10 = $78 $11 x 4 + $2.5 x 10 = $69 $10 x 4 + $2 x 10 = $60 cost of basket $3.00 $2.50 $2.00 price of latte $122005 $112004 $102003 price of pizza year Compute CPI in each year: 2003: 100 x ($60/$60) = 100 2004: 100 x ($69/$60) = 115 2005: 100 x ($78/$60) = 130 15% 13% Inflation rate: 15% = [(115/100) -1] * 100 and 13% = [(130/115) -1] * 100 basket: {4 pizzas, 10 lattes} & 2003 is Base year
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A C T I V E L E A R N I N G 1 : Calculate the CPI 18 The basket contains 20 movie tickets and 10 textbooks. The table shows their prices for 2004-2006. The base year is 2004. A. How much did the basket cost in 2004? B. What is the CPI in 2005? C. What is the inflation rate from 2005-2006? movie tickets text- books 2004$10$50 2005$10$60 2006$12$60
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A C T I V E L E A R N I N G 1 : Answers 19 A. How much did the basket cost in 2004? Cost of the basket =($10 x 20) + ($50 x 10) = $700 movie tickets text- books 2004$10$50 2005$10$60 2006$12$60 The basket contains 20 movie tickets and 10 textbooks.
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A C T I V E L E A R N I N G 1 : Answers 20 B. What is the CPI in 2005? cost of basket in 2005 = ($10 x 20) + ($60 x 10) = $800 CPI in 2005 = 100 x ($800/$700) = 114.3 movie tickets text- books 2004$10$50 2005$10$60 2006$12$60 The basket contains 20 movie tickets and 10 textbooks. You must compute the cost of the basket in 2005 (and use your answer from part A) to find the CPI in 2005.
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A C T I V E L E A R N I N G 1 : Answers 21 C. What is the inflation rate from 2005-2006? cost of basket in 2006 = ($12 x 20) + ($60 x 10) = $840 CPI in 2006 = 100 x ($840/$700) = 120 Inflation rate = {[(120 – 114.3)]/114.3} * 100 = 5% movie tickets text- books 2004$10$50 2005$10$60 2006$12$60 The basket contains 20 movie tickets and 10 textbooks.
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What’s in the CPI’s Basket?
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Problems With the CPI 1- Substitution Bias mUlehtu énkarCMnYs Over time, some prices rise faster than others. enAeBlevlayUrGaceGayéføekIneLIg elOn Consumers substitute toward goods that become relatively cheaper. GñkeRbIR)as;GacCMnUsTMnijenaH)aned aysaEtTMnijepSgvaefak The CPI misses this substitution because it uses a fixed basket of goods. KritsnÞsS¾éføERbRbYlvaGaRs½yelITMnij Thus, the CPI overstates increases in the cost of living.
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Problems With the CPI (Continued) 2- Introduction of New Goods When new goods become available, variety increases, allowing consumers to find products that more closely meet their needs. nUveBlEdlTMnijfµÍvaEtgEtmanGnuPaBeTAelIéfø dUcenHk¾vaGaceGayGñkeRbIR)as; eTArkTMnijNaEdlmanéføefakCag. This has the effect of making each dollar more valuable. vak¾GaCH\TiÐBlelItMélCaxñatdUløar. The CPI misses this effect because it uses a fixed basket of goods. ehIyvak¾Gackat;bnßynUvkareRbIR)as;TMnij Thus, the CPI overstates increases in the cost of living.
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Problems With the CPI (Continued) 3- Unmeasured Quality Change Improvements in the quality of goods in the basket increase the value of each dollar. The BLS tries to account for quality changes, but probably misses some quality improvements, as quality is hard to measure. Thus, the CPI overstates increases in the cost of living.
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Problems With the CPI (Continued) Each of these problems causes the CPI to overstate cost of living increases. The BLS has made technical adjustments, but the CPI probably still overstates inflation by about 0.5 percent per year. This is important, because Social Security payments and many contracts have COLAs tied to the CPI.
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Two Measures of Inflation
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Imported consumer goods: included in CPI excluded from GDP deflator Imported consumer goods: included in CPI excluded from GDP deflator The basket: CPI uses fixed basket GDP deflator uses basket of currently produced goods & services. This matters if different prices are changing by different amounts. The basket: CPI uses fixed basket GDP deflator uses basket of currently produced goods & services. This matters if different prices are changing by different amounts. Capital goods: excluded from CPI included in GDP deflator (if produced domestically) Capital goods: excluded from CPI included in GDP deflator (if produced domestically) Contrasting the CPI and GDP Deflator
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A C T I V E L E A R N I N G 2 : CPI vs. GDP deflator 29 In each scenario, determine the effects on the CPI and the GDP deflator. A. Starbucks raises the price of Frappuccinos. B. Caterpillar raises the price of the industrial tractors it manufactures at its Illinois factory. C. Armani raises the price of the Italian jeans it sells in the U.S.
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A C T I V E L E A R N I N G 2 : Answers 30 A. Starbucks raises the price of Frappuccinos. The CPI and GDP deflator both rise. B. Caterpillar raises the price of the industrial tractors it manufactures at its Illinois factory. The GDP deflator rises, the CPI does not. C. Armani raises the price of the Italian jeans it sells in the U.S. The CPI rises, the GDP deflator does not.
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Correcting Variables for Inflation: Comparing Dollar Figures from Different Times Inflation makes it harder to compare dollar amounts from different times. We can use the CPI to adjust figures so that they can be compared.
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EXAMPLE: The High Price of Gasoline Price of a gallon of regular unleaded gas: $1.42 in March 1981 $2.50 in August 2005 To compare these figures, we will use the CPI to express the 1981 gas price in “2005 dollars.” Question: what gas in 1981 would have cost if the cost of living were the same then as in 2005. Answer: Multiply the 1981 gas price by the ratio of the CPI in 2005 to the CPI in 1981.
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196.4$2.50/gallon8/2005 88.5$1.42/gallon3/1981 CPIPrice of gasDate Solution: The High Price of Gasoline 1981 gas price in 2005 dollars = $1.42 x 196.4/88.5 = $3.15 After correcting for inflation, gas was more expensive in 1981. See next slide. $2.50/gallon $3.15/gallon Gas price in 2005 dollars Thus, if the cost of living in 1981 had been the same as it was in 2005, the price of gas in 1981 would have been $3.15/gallon.
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A C T I V E L E A R N I N G 3 : Exercise Suppose that in 1980: CPI = 90, and average starting salary for economic majors = $24,000 Suppose that today: CPI = 180, and average starting salary for economic majors = $50,000 Are economic majors better off today or in 1980? 34
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A C T I V E L E A R N I N G 3 : Answers 35 Solution Convert 1980 salary into “today’s dollars” $24,000 x (180/90) = $48,000. After adjusting for inflation, salary is higher today than in 1980. 1980: CPI = 90, avg starting salary for econ majors = $24,000 Today: CPI = 180, avg starting salary for econ majors = $50,000
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Correcting Variables for Inflation: Indexation For example, the increase in the CPI automatically determines: the COLA in many multi-year labor contracts. the adjustments in Social Security payments and federal income tax brackets. A dollar amount is indexed for inflation if it is automatically corrected for inflation by law or in a contract.
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Correcting Variables for Inflation (Continued): Real vs. Nominal Interest Rates The nominal interest rate is: the interest rate which is not corrected for inflation. The real interest rate is: corrected for inflation. Real interest rate = (nominal interest rate) – (inflation rate)
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Real and Nominal Interest Rates EXAMPLE Suppose you deposited $1,000 for one year. Suppose nominal interest rate in that year is 9%. Suppose during that year, inflation is 3.5%. Calculate the real interest rate. What happened to purchasing power of your $1000 ? Real interest rate = Nominal interest rate – Inflation = 0.09 – 0.035 = 0.055 = 5.5% Thus, the purchasing power of the $1000 you deposited has grown by 5.5%.
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Real and Nominal Interest Rates in the U.S.
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CHAPTER 5 PART A UNEMPLOYMENT In this chapter, look for the answers to these questions: How is unemployment measured? What is the “natural rate of unemployment”? Why are there always some people unemployed? How is unemployment affected by unions and minimum wage laws? What is the theory of efficiency wages, and how does it help explain unemployment?
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CHAPTER 5 PART A UNEMPLOYMENT Labor Force Statistics Produced by Bureau of Labor Statistics (BLS), in the U.S. Department of Labor. It is based on regular survey of 60,000 households. And, also it is based on “adult population” (16 years or older).
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Labor Force Statistics (Continued) BLS divides population into 3 groups: 1- Employed: paid employees, self-employed, and unpaid workers in a family business. 2- Unemployed: people not working who have looked for work during previous 4 weeks. 3- Not in the labor force: everyone else. The labor force is the total # of workers, including the employed and unemployed. Take a good note of this slide
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labor force participation rate (LFPR) labor force adult population = 100 x Labor Force Statistics (Continued) Labor force participation rate (LFPR): % of the adult population that is in the labor force: Unemployment rate (“u-rate”): % of the labor force that is unemployed: u-rate # of unemployed labor force = 100 x Take a good note of this slide
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A C T I V E L E A R N I N G 1 : Calculate labor force statistics Compute the labor force, u-rate, adult population, and labor force participation rate using this data: 44 Adult population of the U.S. by group, January 2006 # of employed143.1 million # of unemployed7.0 million not in labor force77.4 million
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A C T I V E L E A R N I N G 1 : Answers Labor force = employed + unemployed = 143.1 + 7.0 = 150.1 million U-rate= 100 x (unemployed)/(labor force) = 100 x 7.0/150.1 = 4.7% 45
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A C T I V E L E A R N I N G 1 : Answers Population= labor force + not in labor force = 150.1 + 77.4 = 227.5 LFPR= 100 x (labor force)/(population) = 100 x 150.1/227.5 = 66.0% 46
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ASSIGNMENT Go to the following source to update the previous figures for June 2009. http://www.docstoc.com/docs/8072005/The- Employment-Situation-from-BLS-June-2009 http://www.docstoc.com/docs/8072005/The- Employment-Situation-from-BLS-June-2009 CHAPTER 5 PART A UNEMPLOYMENT
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Labor Market Statistics for Different Groups The BLS publishes the following statistics (next four slides) for demographic groups within the population. These data reveal widely different labor market experiences for different groups.
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Labor Market Statistics for Whites & Blacks, DATE______ Adults (20 yrs & older) u-rateLFPR White, male% White, female% Black, male% Black, female% Students: use www.bls.gov, look for latest “employment situation.” and report to me in the next class.www.bls.gov
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Labor Market Statistics for Whites & Blacks, DATE_____ Teens (16-19 yrs) u-rateLFPR White Black Students: use www.bls.gov, look for latest “employment situation.” and report to me in the next class.www.bls.gov
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Labor Market Statistics for Other Groups, DATE______ All ages u-rateLFPR Asian Hispanic Students: use www.bls.gov, look for latest “employment situation.” and report to me in the next class.www.bls.gov
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Labor Market Statistics by Education Level DATE: January 2006 Adults (25 yrs & older) u-rateLFPR less than h.s.7.0%46.0% h.s. diploma4.462.5 some college or assoc degree 3.572.5 bachelor’s degree or more 2.178.3 Students: use www.bls.gov, look for latest “employment situation.” and report to me in the next class.www.bls.gov Students: use www.bls.gov, look for latest “employment situation.” and report to me in the next class.www.bls.gov
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LFPR by Sex, Since 1950 Men Women
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Thanks for your attention.
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