ShmoopTube

00:01

no macro economics Allah shmoop on employment Alright people Generally

00:09

the more education someone has the lower their chances are

00:12

of being unemployed right Unless there are liberal arts phD

00:16

and work for shmoop And we say that darkly Yeah

00:19

well people are going to be unemployed You can try

00:23

to lower your chances by gaining skills And being well

00:25

educated about any economy is going to have some natural

00:28

inefficiencies in it Like when robots replace human workers in

00:32

industries that require unskilled labor And pretty soon while skilled

00:35

labor as well when automated teller machines or ATMs automated

00:40

the job of a bank teller's While technology displaced a

00:43

huge number of bank teller jobs during the transition from

00:46

people the robots well people were looking for jobs but

00:50

weren't being employed These people had to be retrained and

00:54

then put into a new industry to use their abilities

00:57

efficiently All right well there's a staccato jump cut here

01:01

You like that one between the period when people are

01:03

gainfully employed life is steady and happily boring And then

01:08

when they are fired or their industry implodes and they

01:11

suddenly have to scramble the find new work or risk

01:14

being evicted from their apartment or a station wagon they

01:17

live in in Silicon Valley are in general There are

01:21

always natural inefficiencies in our system or set another way

01:25

There will always be unemployment and over time that quote

01:28

natural rate of unemployment unquote in the U S Has

01:32

hovered somewhere around for 5% The lower the unemployment rate

01:37

the Mohr productive and economy can be In other words

01:40

when more people who are part of the labor force

01:42

are actively working companies can output more well This relationship

01:47

between unemployment and productivity is called O'Quinn's law well in

01:52

the U S When unemployment is generally between three and

01:55

7% 1% fall in unemployment raises GDP by about 2%

02:02

and the same is true in reverse So ah 1%

02:05

increase in unemployment causes GDP to fall by about 2%

02:10

Well if US companies start hiring like crazy and swoop

02:13

up any worker they confined to fill all the positions

02:16

they're offering well the U S Macro economy would experience

02:19

a 2.5% decrease in unemployment and then we have the

02:24

next year where the U S Reports a 5% increase

02:27

in GDP Well this lock step relationship between a change

02:31

in unemployment followed by a change in GDP illustrates O'Quinn's

02:36

lawyer That's the relationship right there What we know from

02:40

looking at aggregate demand that increased output from reduced unemployment

02:44

I'II going from 90% employed to 95% employed can raise

02:49

the pricing level right like there's more workers earning more

02:53

money with more demand to spend on a flat amount

02:56

of things supplied And that whole cab all creates inflation

03:01

Will The inverse relationship between unemployment and inflation is shown

03:05

by the Phillips Curve What low unemployment generally presses inflation

03:10

upward because with more or less everyone employed while there

03:13

are lots of quote excess unquote dollars floating around where

03:17

people are willing to spend money on conveniences for which

03:20

they would not ordinarily spend On the other hand high

03:23

unemployment typically lowers inflation right so this only makes sense

03:27

for shifts in aggregate demand Since when aggregate demand increases

03:32

like that shift they're both output and price level increased

03:37

so well the Phillips curve holds that's the right model

03:40

so Point B shows lower than normal unemployment at 3%

03:45

and higher than normal inflation at 5% while point A

03:50

shows higher than normal unemployment 6% and lower than normal

03:54

inflation at 2% But think about a shift in aggregate

03:57

supply caused for example by higher oil price It's like

04:01

a bomb goes off somewhere in the Middle East and

04:03

suddenly production supply declines by 3% overnight Well if aggregates

04:09

supply shifts left output falls while the price level rises

04:13

Right Demand didn't change Supply just decreased This means both

04:17

unemployment and inflation rise Creating stagflation Yeah lovely lovely thing

04:22

to have there when aggregates supply ships while the entire

04:25

Phillips curve also shifts a given country wants to try

04:29

and reduce the inefficiencies in their economy so that they

04:32

can operate at full employment which means that an economy

04:36

is most efficiently allocating its labor pool on Think about

04:40

this in the context of the new mobile economy where

04:42

most office jobs can be done from pretty much anywhere

04:46

that has a decent Internet connectivity and well food So

04:50

one of the considerations here in trying to understand what

04:53

unemployment numbers mean revolves around understanding the cohort I'II labor

04:59

participation rate Well a cohort is a partner or a

05:02

times a substitute and creates downward pressure on pricing or

05:07

rather adds liquidity to the job pool Right That group

05:10

the cohort is more or less always actively working or

05:14

looking for a job making substitution all the easier And

05:19

note that this force will likely be empowered when robots

05:22

truly become our dominant overlords right Well simply put if

05:25

someone is not in the pool of labor they might

05:27

not be working But they also don't count as unemployed

05:30

either They exist in the hinterlands between seeking and not

05:35

you know kind of like people on tinder Okay then

05:37

So who counts toward labor pool Well anyone who's either

05:40

working or actively looking for work that means that if

05:43

you're a stay at home mom or dad a student

05:46

retired or you're sitting on your couch covered in chips

05:49

watching Netflix and chill in all day Well you aren't

05:52

counted in the labor force The Bureau of Labor Statistics

05:56

is responsible for measuring the unemployment rate each month They

06:00

could go around knocking on everyone's door and asking their

06:02

employment status and maybe even use it as a Englishmen

06:05

for the evil doers of society To have to go

06:07

do that job work well while they work on this

06:11

possibly equally as bad Alternative to jail time B L

06:15

s uses something called the current population survey Yeah they

06:20

ask 60,000 households about their employment status sis's and apply

06:25

that data to the whole country Will they have to

06:27

be careful about who they ask and how they report

06:29

their results when they take a sample of the population

06:32

It most likely isn't going to exactly match up with

06:35

the true value of the entire nation So they asked

06:38

people from various backgrounds accounting for age gender race location

06:44

and a whole bunch of other factors Then it can

06:47

extrapolate their findings to the entire nation Based on that

06:51

census data they have to be careful about how they

06:54

break up the pie and make sure they don't over

06:56

or under count And if the pls whereto only ask

06:59

people from Podunk Iowa about their employment status while the

07:02

results would be heavily skewed or if they were the

07:05

only ask computer science majors coming out of Stanford and

07:08

living in Menlo Park not even three miles away from

07:11

Facebook headquarters about their employment prospects yeah again the results

07:15

would be heavily skewed Well the B L s takes

07:18

this information and finds the unemployment rate by determining the

07:22

fraction of the labor force that is unemployed So a

07:25

10% unemployment rate doesn't mean that 10% of the entire

07:28

country is unemployed Just that 10% of the labor force

07:33

is unemployed Well unemployment comes in four basic flavors Vanilla

07:37

chocolate and strawberry Wait that's not right It's frictional structural

07:42

and seasonal unemployment While frictional unemployment comes from people having

07:47

just entered the job market or making the transition between

07:51

jobs I eat fresh meat Recent college grads looking for

07:56

a new job Well this is temporary This processes anyway

07:59

like our lips turning blue after eating a blue raspberry

08:02

dum dum You know it's all about getting the right

08:03

people into the right jobs and keeping them there What

08:06

When an industry fundamentally changes through new technological developments or

08:10

more efficient organizational structures we get structural unemployment When Tesla

08:16

gets its robotic car assemblers working well the auto manufacturing

08:20

company won't need as many laborers in human form anyway

08:23

On hand machines replace factory workers as technology continues to

08:28

progress because one robot replaces multiple human laborers for a

08:33

fraction of the operating cost meaning higher margins for the

08:36

company In the long run we'll as time goes by

08:39

people's tastes and preferences change While you might want a

08:42

cup of nice and toasty hot cocoa in the middle

08:45

of winter and high powered fans even blast freezers in

08:49

the middle of summer well you probably aren't gonna want

08:51

to pour scalding liquid down your throat when it's 109

08:55

degrees outside Nor you gonna want your tongue frozen to

08:58

a Popsicle went even Your snot is freezing well When

09:02

the seasons change so do your consumption habits Seasonal laborers

09:06

are employed in industries that on ly have demand in

09:08

a certain season right when there aren't red and yellow

09:11

leaves on the ground while pumpkin farmer's and hay bale

09:14

maze operators can't afford to keep a whole staff around

09:18

So they have to temporarily let some people go kind

09:21

of like Moses said right that creates seasonal unemployment Well

09:27

frictional structural and seasonal unemployment are inevitable when it's just

09:32

those three at play We're at full employment since unemployment

09:36

will never be truly 0% Well we have to manage

09:39

our expectations somehow Okay Okay we're done torturing you If

09:43

you were obsessing over the fact that he said there

09:45

were four flavors they're of unemployment and only named three

09:48

Okay here we go The fourth flavor Butterscotch Yeah All

09:51

right all right We're left with one other type of

09:53

unemployment Cyclical unemployment You know the wheels on the labour

09:58

go round and round like that All right Well just

10:00

as the wheels of a bicycle go round and round

10:03

cyclical unemployment goes up and down with the business cycle

10:06

Well when the economy is in bad shape like during

10:08

the great recession while cyclical unemployment goes up So what

10:12

happens if someone becomes unemployed Well if we've been let

10:16

go and it wasn't because we were caught on tape

10:19

taking a leak on the CEO's computer well we can

10:22

get unemployment benefits It won't be as much money as

10:25

we made before but it's ah maybe 1/3 of what

10:27

we used to make At least enough to pay our

10:29

rent for a few months and eat Well How did

10:31

this whole unemployment thing come about Well the Great Depression

10:35

caused a lot of people to lose their jobs Oh

10:39

and it basically wrecked the economy While President Franklin Delano

10:43

Roosevelt FDR ushered in the New Deal policies as a

10:47

way to jump start the economy And in the summer

10:49

of 1935 he pushed another set of policies called cleverly

10:52

named Yes The Second New Deal the creation of unemployment

10:56

benefits made sure that people had at least a minimum

10:59

level of cash to support themselves while searching for more

11:03

work And as you can imagine this all plays an

11:06

interesting role in the labor market Since people received money

11:09

during this period there's a belief that they may not

11:12

be looking for a job as intensely as they would

11:15

if they were receiving no money at all The sense

11:18

of urgency is diminished by the benefits Well some argue

11:22

that for this reason unemployment benefits shouldn't exist at all

11:26

so that there's no incentive to not look urgently for

11:30

work Alright so quick Recap Bill s calculates the unemployment

11:34

rate every month using current population surveys There are four

11:38

kinds of unemployment frictional structural seasonal and cyclical The economy

11:44

is at full employment when frictional seasonal and structural unemployment

11:48

are present and unemployment benefits Paya set percentage of what

11:52

we used to make to help us out while we're

11:54

looking for a new work and some believe this actually

11:57

reduces the incentive to find a job And that's that

12:00

whole political thing and we just won't go there So 00:12:02.99 --> [endTime] that's it Look

Full Transcript