Macroeconomics: Unit 3, (Un)employment

CoursesMacroeconomics
LanguageEnglish Language

Transcript

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to lower your chances by gaining skills And being well

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educated about any economy is going to have some natural

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inefficiencies in it Like when robots replace human workers in

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industries that require unskilled labor And pretty soon while skilled

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labor as well when automated teller machines or ATMs automated

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

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huge number of bank teller jobs during the transition from

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people the robots well people were looking for jobs but

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

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then put into a new industry to use their abilities

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

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You like that one between the period when people are

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gainfully employed life is steady and happily boring And then

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when they are fired or their industry implodes and they

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suddenly have to scramble the find new work or risk

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being evicted from their apartment or a station wagon they

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live in in Silicon Valley are in general There are

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always natural inefficiencies in our system or set another way

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There will always be unemployment and over time that quote

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natural rate of unemployment unquote in the U S Has

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hovered somewhere around for 5% The lower the unemployment rate

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the Mohr productive and economy can be In other words

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when more people who are part of the labor force

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are actively working companies can output more well This relationship

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

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the U S When unemployment is generally between three and

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

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and the same is true in reverse So ah 1%

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increase in unemployment causes GDP to fall by about 2%

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Well if US companies start hiring like crazy and swoop

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up any worker they confined to fill all the positions

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

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a 2.5% decrease in unemployment and then we have the

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next year where the U S Reports a 5% increase

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in GDP Well this lock step relationship between a change

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

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

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looking at aggregate demand that increased output from reduced unemployment

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

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

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money with more demand to spend on a flat amount

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of things supplied And that whole cab all creates inflation

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Will The inverse relationship between unemployment and inflation is shown

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by the Phillips Curve What low unemployment generally presses inflation

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upward because with more or less everyone employed while there

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are lots of quote excess unquote dollars floating around where

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people are willing to spend money on conveniences for which

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they would not ordinarily spend On the other hand high

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unemployment typically lowers inflation right so this only makes sense

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for shifts in aggregate demand Since when aggregate demand increases

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

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

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so Point B shows lower than normal unemployment at 3%

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and higher than normal inflation at 5% while point A

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shows higher than normal unemployment 6% and lower than normal

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inflation at 2% But think about a shift in aggregate

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

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a bomb goes off somewhere in the Middle East and

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suddenly production supply declines by 3% overnight Well if aggregates

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supply shifts left output falls while the price level rises

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

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unemployment and inflation rise Creating stagflation Yeah lovely lovely thing

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to have there when aggregates supply ships while the entire

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Phillips curve also shifts a given country wants to try

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and reduce the inefficiencies in their economy so that they

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can operate at full employment which means that an economy

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is most efficiently allocating its labor pool on Think about

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this in the context of the new mobile economy where

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most office jobs can be done from pretty much anywhere

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that has a decent Internet connectivity and well food So

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one of the considerations here in trying to understand what

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

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participation rate Well a cohort is a partner or a

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times a substitute and creates downward pressure on pricing or

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rather adds liquidity to the job pool Right That group

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the cohort is more or less always actively working or

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looking for a job making substitution all the easier And

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note that this force will likely be empowered when robots

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truly become our dominant overlords right Well simply put if

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someone is not in the pool of labor they might

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

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either They exist in the hinterlands between seeking and not

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you know kind of like people on tinder Okay then

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

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working or actively looking for work that means that if

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

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

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

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counted in the labor force The Bureau of Labor Statistics

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is responsible for measuring the unemployment rate each month They

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

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employment status and maybe even use it as a Englishmen

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for the evil doers of society To have to go

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do that job work well while they work on this

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possibly equally as bad Alternative to jail time B L

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s uses something called the current population survey Yeah they

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

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that data to the whole country Will they have to

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be careful about who they ask and how they report

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their results when they take a sample of the population

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

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the true value of the entire nation So they asked

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people from various backgrounds accounting for age gender race location

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and a whole bunch of other factors Then it can

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extrapolate their findings to the entire nation Based on that

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census data they have to be careful about how they

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

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or under count And if the pls whereto only ask

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people from Podunk Iowa about their employment status while the

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results would be heavily skewed or if they were the

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only ask computer science majors coming out of Stanford and

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living in Menlo Park not even three miles away from

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Facebook headquarters about their employment prospects yeah again the results

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would be heavily skewed Well the B L s takes

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this information and finds the unemployment rate by determining the

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fraction of the labor force that is unemployed So a

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

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country is unemployed Just that 10% of the labor force

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is unemployed Well unemployment comes in four basic flavors Vanilla

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

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and seasonal unemployment While frictional unemployment comes from people having

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just entered the job market or making the transition between

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jobs I eat fresh meat Recent college grads looking for

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a new job Well this is temporary This processes anyway

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like our lips turning blue after eating a blue raspberry

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

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people into the right jobs and keeping them there What

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When an industry fundamentally changes through new technological developments or

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more efficient organizational structures we get structural unemployment When Tesla

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gets its robotic car assemblers working well the auto manufacturing

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

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On hand machines replace factory workers as technology continues to

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progress because one robot replaces multiple human laborers for a

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fraction of the operating cost meaning higher margins for the

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

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

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cup of nice and toasty hot cocoa in the middle

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of winter and high powered fans even blast freezers in

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

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

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degrees outside Nor you gonna want your tongue frozen to

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a Popsicle went even Your snot is freezing well When

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the seasons change so do your consumption habits Seasonal laborers

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are employed in industries that on ly have demand in

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

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

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

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So they have to temporarily let some people go kind

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of like Moses said right that creates seasonal unemployment Well

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

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

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will never be truly 0% Well we have to manage

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

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you were obsessing over the fact that he said there

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

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Okay here we go The fourth flavor Butterscotch Yeah All

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

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unemployment Cyclical unemployment You know the wheels on the labour

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go round and round like that All right Well just

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as the wheels of a bicycle go round and round

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cyclical unemployment goes up and down with the business cycle

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Well when the economy is in bad shape like during

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the great recession while cyclical unemployment goes up So what

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

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

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

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

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

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we used to make At least enough to pay our

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rent for a few months and eat Well How did

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this whole unemployment thing come about Well the Great Depression

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caused a lot of people to lose their jobs Oh

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and it basically wrecked the economy While President Franklin Delano

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Roosevelt FDR ushered in the New Deal policies as a

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way to jump start the economy And in the summer

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of 1935 he pushed another set of policies called cleverly

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named Yes The Second New Deal the creation of unemployment

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benefits made sure that people had at least a minimum

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level of cash to support themselves while searching for more

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work And as you can imagine this all plays an

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interesting role in the labor market Since people received money

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

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be looking for a job as intensely as they would

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if they were receiving no money at all The sense

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of urgency is diminished by the benefits Well some argue

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

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

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work Alright so quick Recap Bill s calculates the unemployment

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rate every month using current population surveys There are four

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kinds of unemployment frictional structural seasonal and cyclical The economy

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is at full employment when frictional seasonal and structural unemployment

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are present and unemployment benefits Paya set percentage of what

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

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looking for a new work and some believe this actually

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

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