The Instant Economist by Timothy Taylor

Author:Timothy Taylor
Language: eng
Format: azw3, mobi, epub
Tags: Itzy, Kickass.to
ISBN: 9781101559772
Publisher: Plume
Published: 2012-01-31T05:00:00+00:00

CHAPTER 21

Unemployment

What is unemployment? That question may seem too obvious to need an answer. But should a homemaker not looking for work be counted as unemployed? What about a worker who has an unrealistic idea of how much pay he or she is going to receive and is waiting for a job offer that is never going to come? A specific definition of unemployment can clarify these sorts of issues.

The official government unemployment rate, calculated by the U.S. Bureau of Labor Statistics, is based on a monthly survey that records how many people do not have work and are presently looking for work. A person who does not meet both of those conditions is counted as “out of the labor force.” About one-third of all U.S. adults are considered to be out of the labor force.

Defining unemployment in this way offers a consistent definition over time, but the underlying meaning can be controversial. For example, what about a discouraged worker—a person who has been looking for a long time but can’t find work and has finally given up? If that person answered the survey by saying, “I’m not looking,” that person is not counted as unemployed. What about someone who’s working part time and answered, “I am working,” even if that person would much rather have full-time work? That person is not counted as unemployed. What about the people who, as occurs in any survey, don’t answer truthfully, who claim they’re looking for work when they’re really not? They are counted as unemployed, even though they may be out of the labor force altogether.

Economists view unemployment in a slightly different way than do government statisticians. In a standard example of a market for, say, bananas, a fall in demand would result in a lower price for that product. When the economy falls into recession, and demand for labor declines, wages and salaries rarely fall in any substantial way. Instead, the quantity of labor demanded falls, and unemployment results. Thus, to economists, unemployment occurs when someone is willing to work at the going wage for that person’s skills and experience level, but can’t find a job. From this perspective, unemployment is a situation in which wages are, for some reason, stuck above the equilibrium level, so that the quantity of labor supplied at that wage rate exceeds the quantity demanded.

Economists have devoted considerable effort to determining why wages might be “sticky downward” and to the policy implications of this insight. For example, one reason why wages might not decline much when the economy turns down is that for some employees, minimum wage law or explicit union contracts might block the wage from falling. But minimum wages and union contracts don’t affect most workers in the U.S. economy.

Thus, economists have turned their attention to the so-called implicit contracts that workers have with their employers. For most employees, wages are fairly fixed over a given year; that is, your salary is the same in a month when business is bad as it is when business is good.

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