Unit 4

Unit 4Employment and National Income Accounting Ch. 8, 13, 14 and 16Rev 7/11, Robin Foster

The Business Cycle

The Business Cycle Illustrated:Peak temporary maximum in Real GDP. At this point the unemployment rate (u%) is probably below the natural rate of unemployment, and the inflation rate (%) is probably increasing.RecessionThe contractionary phase of the business cycle. A period of decline in Real GDP accompanied by an increase in u%. To be classified as a recession, the economic decline must be at least 6 months long.TroughThe bottom of the business cycle. The u% is probably high and % is probably low.RecoveryThe phase of the business cycle where the economy is returning to full employment.

The Business Cycle Illustrated:Important noteNot all countries are in the same place at the same time?The various phases of the business cycle last for different amounts of time. In recent history, expansions have lasted years longer than have recessions.The Great Depression is the most notable example of a long recession/trough

Government and the Business CyclePeak-government is or . Why?

Recession-government is or . Why?

Trough-government is or . Why?

Recovery-government is or . Why?Consumer Price IndexConsumer Price Index or CPI-produces monthly data on changes in the prices paid by urban consumers for a representative basket of 90,000 goods and services.

1982 is the base year.

Major categories of the CPIfood and beverages housingApparelTransportationmedical care recreationeducation and communicationsother goods and servicesData is collected from about 23,000 retail establishments.

The CPI is a measure of inflation.Producer Price Index

Producer Price Index or PPI tracks changes in 100,000 reported commercial items.1982 is the base year.A family of three indices (finished goods, intermediate goods, and raw materials or crude commodities). It is used as an indicator of rate of inflation or deflationInflation-Ch. 14, Sec. 3Inflation- increasing price levels.

Changes in prices, employment and output are all linked to inflation

Your purchasing power is linked to inflation. Degrees of inflationCreeping:1-3%/yearGalloping: 100-300%/yearHyper: 500% or more/year

Zimbabwe inflation231 million %

Causes of inflationCost push-Costs of inputs pushing up prices.Demand pull-Too many dollars chasing too few goods.Federal Government deficit spending.Cost of labor increases cost of production.Excessive money growth-loose money policyConsequences of inflationThe dollar buys less, purchasing power deceases as prices increase.Changes in spending habits by consumers.Investment speculation increases.Creditors hurt, borrowers helped.

Deflation-Falling pricesDeflation is as bad as inflation. Why?

Disinflation-the level of inflation is decreasing. Gross Domestic Product (GDP)The measures were developed in the 1930s.

Originally the Gross National Product (GNP) was used. Since the 1990s the GDP has been the official measure.

The GDP is measured quarterly.

GDP GDP is the total value of all final goods and services produced in a given year. It includes all goods and services citizen or foreign supplied in the USA.GDP is a monetary measure

Why? As the GDP of an economy increases, we have economic growth, and is a tracking of long term economic growth.Limitations: does not measure quality of life, leisure time, crime.GDPGross-total before adjustments.National-Production owned by U.S companiesDomestic-production in the U.S, even if foreign owned.

There are two ways to calculate the GDPThe expenditure approach:C+Ig+G+Xn=GDP

C=personal consumption of finished goods and servicesIg=gross private investment, construction of new houses, factory equipmentG=governmentXn=net foreign factor of trade (exports-imports) if Xn is negative, a trade deficit exists

There are two ways to calculate the GDP

Income ApproachW+R+I+P+Sa=GDP

W=wagesR=RentsI=IncomeP=ProfitsSa=Statistical adjustmentsIs everything counted or not?What is counted-All final goods and services produced in a given year for final use by consumers, business or government.GDP includes only goods and services produced within the geographic boundaries of the U.S., regardless of the producer's nationality.

What is not counted?Used goods, secondhand salesGifts, transfer payments(social security, welfare, veterans payments)Stock equity and securities purchased.Unreported business activities done for cash.Illegal, black market activities.Financial transactions between banks and businessintermediate goodsnon-market activities-volunteer or family work.Made in a foreign land.We only want to count things once!!!!!!!!

GDPLimited as it does not take into effect quality of life, new products or quality /safety improvements in products.

GDP per capita= Total GDP/population of countryUSA about $46,000

GNP-adds in production by American companies producing outside of the USA

GDP to Disposable incomePI (Personal Income)-personal Taxes+add credit card expenditures**Now we have:DI (Disposable income)-credit card payments**

DI can only be used for consumption (C) or Savings (S).

Importance of Economic GrowthStandard of living-better, increasing quality of life.

Government Spending-increased tax base, increased government revenue.

Decreased domestic problems-unemployment falls, less welfare and social services.Importance of Economic GrowthIncreased American Demand-domestic sales and American exports create jobs.

Role Model-the USA is a role model for the world to demonstrate that capitalism works.Factors that affect Economic growthConservation of resources, recycle, new inputsGenerate new money, factoriesA skilled, educated growing workforce.Entrepreneurs emerge to create new businesses, and internet businesses.Trade-creates jobs, generates $$$$$Technology-does not happen at regular cycles.Section 3-GDP and PopulationLabor is tied to population size.

Population affects quality of life.

A census is taken every 10 years, 2020 is the next census year.

2010 census dataWhat is the demographic data of the USA?USA SnapshotPopulation of the USAUrban-areas over 2500 in population.

Rural-rest of the population

Center of population

Population trends based on demographicsDemographics-population data

USA population

The West and South are the fastest growing regions of the USA.

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Population dataPopulation growth rate0.963% (2011 est.)Birth rate13.83 births/1,000 population (2011 est.)Death rate8.38 deaths/1,000 population (July 2011 est.)Net migration rate4.18 migrant(s)/1,000 population (2011 est.)Urbanizationurban population: 82% of total population (2010) rate of urbanization: 1.2% annual rate of change (2010-15 est.)

Age structureAge structure0-14 years: 20.1% (male 32,107,900/female 30,781,823) 15-64 years: 66.8% (male 104,411,352/female 104,808,064) 65 years and over: 13.1% (male 17,745,363/female 23,377,542) (2011 est.)Median agetotal: 36.9 years male: 35.6 years female: 38.2 years (2011 est.)

Population issuesBaby boomers retiring-aging of the population. As baby boomers retire, we do not have as many persons to fill the jobs.

Dependency ratio-number of children (under 16) and elderly (over 65) per thousand.

65.7/100 in the labor force projected for 2016.

Economic swings will keep those near retirement age in the work force longer. There is also discussion of raising the retirement age to 70-75.MacroeconomicsThis is the part of economics that deals with the economy as a whole, including the decision making of the government, unions, etc.

Jobs and UnemploymentTotal population of the USA.Working Age population is the total number of people aged 16 and older who are not in jail, hospital, institutionalized or in the military.Civilian Labor Force number of persons employed and unemployed. Ages 16-65, who are working or have been looking for a job in the past 6 weeksCivilian Labor Force

Start with population of the USA.-those under 16 years old-full time military (5% of population)-institutionalized and in prison (7.5% of population)This leaves you with the non institutionalized adult civilians-retired persons (10.9% of population and increasing)-homemakers (9.9% of population)-full time students over 16-discouraged workers, not looking for workThis leaves you with the Civilian Labor Force.

This includes:Employed or part time, employed and unpaid workers working in a family business, those on sick leave, strike or on vacation, on the 12th of the month.

Labor UnionsPros:

Increased PayBetter working conditionsPolitical power for members

Labor UnionsCons:

Higher pay, pricing themselves out of the market.Strikes can cripple a business.Are unions really still necessary today?

Types of Labor UnionsTrade or Craft Unions:

Skilled workers who perform the same job.

Example: Pilots Union, teachers unionIndustrial Unions:

All workers in their industry no matter their job.

Example: Garment workers, Teamsters.Local/National UnionsLocal Unions consist of members of a union in a particular factory, company or geographic area.

The local deals with the company by negotiating a contract and making sure the terms of the contract are kept.

Your local union is a part of the national union-The teamsters.

The national union representatives an visit your local or membership when necessary.

Types of union arrangementsClosed shop-only union works can be hired-is illegal.Union shop-must be a union member or join union once hired. Not allowed in right to work states.Modified Union shop-if you join the union, you must stay in the union to keep your job.Types of Union ArrangementsAgency shop- you do not have to join the union, but you must pay union dues.Open shop-anyone can be hired.

Right to Work States

Right to WorkA state law preventing closed shops; benefits negotiated by the union must be made available to all workers.

Texas is a right to work state.

Techniques used by unions against management to gain workers demandsStrikes-walk off the job, no work=no pay.Picket lines-parade in front of business.Boycotts-refusal to purchase a product or service.Sick-outs-call in sickSlowdowns-dont produce as much. Techniques used by management to counteract union actions.Lockouts-lock union workers out of work site.Company unions-management organizes their own union within the business.Yellow dog contracts-clause in work contract that does not allow unions.Injunctions-a court order that prohibits a strike.Blacklisting-person labeled by management as a trouble maker.How do unions affect you as an employee?ManagementConsumerManagements hands get tied by the union contract.Unions function as a cartel-limiting workers in an industry.Unions costs reduce business investment which decrease job availability.Business must raise prices to cover costs and risk losing customers.

Unions oppose trade and competition.Consumers pay higher prices for goods in unionized industries.Jurisdictional DisputeA disagreement over which union should perform a particular job.

Section 2: Resolving union management differencesCollective BargainingGrievance ProcedureA series of meetings between labor and management to discuss wages, contracts, benefits etc.A provision in a labor contract, (union or non-union) for resolving current or future labor problems.Methods to solve labor/management conflictsMediation-a 3rd party listens to both sides and suggests a settlement.

Arbitration-Same as mediation except the decision of the 3rd party is final.Voluntary-both parties choose to go.Compulsory-both parties are forced to go.

Methods to solve labor/management conflictsFact-finding-investigate workplace problems reported by workers. Findings are announced, and any problems will need to be remedied.Injunction- a court order to either end a strike or prevent a strike.Used most commonly with police, firepersons and Air traffic controllers.The health/safety and well being of the public could be at risk with a strike.Methods to solve labor/management conflictsPresidential Influence-President gets involved and settles the strike.President Carter and a coal miners strike.

SeizureGovernment takes over the industry.

The last time this happened was the steel mills during WWII.We needed the steel for the war effort and could not afford for the workers to go on strike.

Categories of LaborThere are 4 categories of labor.Jobs are grouped according to the skill and training to perform the job.Pay is not a factor.

UnskilledNo training or skill is necessary to perform this job.Including-fruit picker, ditch digger

Semi-SkilledSome training, operate machines.Direct supervision can be required. Examples include: mowing lawns, fast food workers.

SkilledOperate complex machines with little supervision.

ProfessionalHigh level of education and managerial skills.

Types of WorkersBlue collar-traditionally their Shirt was blue.

Types of WorkersWhite Collar

Types of WorkersService workers provide for customers:

Non-competing labor gradesUnskilled workers do not and cannot compete with skilled workers for the same job.

Non-competing labor gradesThree factors contribute to non-competing labor grades:High cost of training and education, lack of money.Lack of opportunity, training not available in your area, wont move to get training.Lack of incentive, no motivation, lack of effort.Wage determinationTraditionalNegotiatedSupply and demand determine wage rates. Fewer workers=higher wagesCollective bargaining determines rates.

SenioritySeniority is the idea that workers with more years on the job should get higher pay and benefits.

Tenure is the same premise but for college professors and teachers in some states.

Signaling theoryEmployers are willing to pay more for people with certificates, diplomas or degrees. Signals of superior ability.This is especially true when there is a shortage of workers in the field.

Additional factors that affect wagesSkill a person brings to the job-experience, training.Type of job-stressful, dangerousLocation of job-warm, cold, city, country, internationalRegional Wage DifferencesLabor mobility-ability and willingness to relocate, supply of labor.Cost of living-rent, utilities, food vary by region.Location-the more attractive the location, lower wages and fewer jobs.

Decline of UnionsManagement discouraging unionsIncreased women and minorities in the workforce.Unions have priced themselves out of the market.Union corruption.Are they really necessary in todays society?Equal Pay for Equal WorkThis is a major economic topic today.

Women generally still earn about 70% of what men earn.

Reasons for pay inequalityOccupational differences-traditional male/female jobs.

Discrimination-glass ceiling-point above which women are not promoted.

Reasons for pay inequalityEducation or training-women put off education.

Child rearing/child care-women take a break from the workforce to raise kids.

Part time workers

Part time workersWork fewer than 35 hours a week.1 in 5 workers in the USA is a part time worker.

Many work part time because they choose to work part time.

Growth of Part time workersChanging nature of US economy. Stores open 24/7.

Flexible scheduling options, more employees during peak hours.Critics of part time workers claim:Wages too low, hours too few to earn a decent livingDenies full time employment and benefits.Workers feel abused.Minimum WageSupporters feel the wage provides a living wage for workers.

Minimum wage:$7.25 as of 7/24/09

Minimum Wage

Legal remedies fight wage/salary discrimination Equal Pay Act of 1963 set equal pay for equivalent jobs.

Civil Rights Act of 1964-prohibits discrimination based on race, sex, religion, etc. Also applies to gender discrimination.Legal remedies fight wage/salary discrimination Comparable worth is the concept that jobs which require comparable abilities, knowledge, and skills, should be paid the same wage/salary rate irrespective of the employee's age, race, sex or any other difference.

Legal remedies fight wage/salary discrimination Set-aside Contracts are reserved for women or minority owned businesses. In some instances the bid will only be opened to minority or women owned businesses.Legal remedies fight wage/salary discrimination Affirmative action are policies that take race, ethnicity, or gender into consideration in an attempt to promote equal opportunity or increase ethnic or other forms of diversity.

Legal remedies fight wage/salary discrimination Reverse discrimination-have been used in past discussions of racial quotas or gender quotas for collegiate admission to government-run educational institutions. Such policies were held to be unconstitutional in the United States, while non-quota based methods, which may include race as a factor, including some affirmative action programs (race as a factor, ethnic minorities, and physical, mental, or learning disabilities) can be legal.

Minimum wageCritics argue it takes economic freedom from employers.

The Federal minimum wage is a price floor. Many states pay more than the federal minimum wage.

Immigrants and the job marketImmigration and jobs is a hot topic of discussion.

Americans disagree on the topic.

A recent survey of Americans

Immigration and jobsImmigration origins have shifted from Europe to Asia and Latin America.The new destination of immigrants are the Mountain west and Southwest.

The continuing issue are mixed status families and government policies.Immigration and jobsMost female immigrants never enter the workforce.Foreign-born flow to jobs were the demand is higher.Most immigrants work for minimum wage, therefore have no benefits such as insurance or retirement.This strains the social service system in the United States. In Harris County in 2005, over $12 billion was spent on indigent care.Immigration and jobsImmigrants are more likely to lack a college degree.Immigrants do not take jobs from Americans, instead they backfill those jobs Americans do not want.With the current unemployment rate, many have no choice in the job they take.

Unemployment-Ch. 14 Sec. 2Unemployment is the condition of being jobless.

Unemployment ratePercent of people without jobs.

Take the number unemployed and divide by the civilian labor force.

This figure does not include discouraged or part time workers.

Full employmentFull employment does not mean zero unemployment.

It means everyone who wants a job has one.

The natural rate of unemployment is about 5-6% as someone will always be out of a job.Types of unemploymentThere are 5 types of unemployment.

Some unemployment is better than others.

Types of unemploymentFrictional-persons in between jobs or those entering the work force for the first time.

Structural-changes in technology, consumer tastes

Types of unemploymentCyclical-A change in the business cycle so workers are laid off.

Types of unemploymentSeasonal-related to weather or buying seasons.Techological/automation-replaced by machines

Misery IndexAn index combining the unemployment rate and inflation rate. The index is used to measure the political significance of the condition of the economy, as well as consumer confidence.

Misery Index and Presidents

Income DistributionThe Lorenz Curve shows the distribution of income and the inequality gap.The way money is allocated in a society and can be analyzed by looking at households, age, family, ethnicity, gender, geographic regions.

Reasons for income inequality:Education-more education, more income.Wealth-top 1/5 of population, holds 75% of wealth.Discrimination.Natural ability-athletes, musicians, artists.Monopoly power-unions, limits on law/medical school enrollments.Poverty Guidelines

PovertyThe poverty level is the benchmark used to declare one poor.13% of the US lives in poverty.38% of all children live in poverty.

Really?

Causes of income distribution gaps:Changes in the economy-factory to service.Gap between educated and illiterate.Decline in unions.Increase in single parent families

Anti-poverty ProgramsIncome assistance-welfare, food stamps, medicare, medicade (headstart), foster care.Earned income tax credit for low income workers.Enterprise zones-companies get tax breaks to locate in high poverty, high unemployment areas.Workfare-must work to get welfare.