Word Splash Warm Up

How can central banks help/hurt a country transitioning from command to market? Answer using all the terms below and be ready to share.

Central bank, independence, money supply, inflation, government

UNEMPLOYMENT VS. UNDEREMPLOYMENT

Today’s LEQs: •Why was there little unemployment in command economies?•What trade-offs related to labor are made during transition?

The Main Idea…

When it comes to unemployment, there are opportunities and consequences associated with transitioning from command to market (trade-offs).

We’ll be comparing/contrasting the economic performance of each system. Specifically, labor productivity – the amount each worker produces.

Introduction

Unemployment – people actively looking for jobs cannot find work

Underemployment – workers unable to work as many hours as they want or have jobs that do not fully use their training and skills

Both affect levels of national income and economic growth; labor resources not used at maximum potential so economy’s production level less than potential GDP

Activity 1

Unemployment rates are ratios… Numerator: the number of people who

want to work and are actually looking for work but do not have jobs (unemployed)

Denominator: the number of people who want to work and are actively looking for or have jobs (labor force)

Complete ACTIVITY 1

Conclusions from Case 1?

Case 1: (Initially employed = 100, unemployed = 25, unemployment rate = 25/125 or 25%); (After the lottery, employed = 100, unemployed = 20, unemployment rate = 20/120 or 17%)

What conclusions can you draw from this example?

Conclusions from Case 2?

Case 2: (Initially employed = 70, unemployed = 30, unemployment rate = 30/100 or 30%); (After the new government policy is adopted, employed = 100, unemployed = 0, unemployment rate = 0%)

What conclusions can you draw from this example?

Activity 2

Write a paragraph summarizing a real world situation in which you observed worker productivity to be high, medium, or low. List changes in the process that might raise or lower productivity. Be ready to share!

The Queue Blues at the Central Store

What was life like in the former Soviet Union?

Rules for the Simulation

Eight students are employees at the Central Store: Security guard who monitors traffic

and disruptions Cashier who handles all the cash

transactions 6 counter clerks who process orders

for one of three food items The rest of you are customers

Queue Blues Recap

How many orders were processed?

Were all employees of the Central Store always busy? If not, who was less busy?

Was the store efficient?

Queue Blues Recap

In command economies, full employment is sometimes achieved by hiring more workers than necessary which results in low productivity or underemployment. Were some of the workers at the

Central Market underemployed? How could you tell?

How will unemployment and underemployment affect the standards of living and income levels?

The BIG Concepts

• Unemployment tends to be higher in market economies, but in command economies there is likely to be more underemployment.

• Average production and income levels are lower in command economies than in industrial market economies.

• There is a level of protection from unemployment in the command economies that is not always provided to workers in a market economy.

• When transitioning from command to market, security is given up for efficiency and growth (unemployment replaces underemployment)

Acrostic Summary Answer today’s LEQs in the

from of an acrostic poem. What term should we use?

1. Why was there little unemployment in command economies?

2. What are the trade-offs among the goals related to labor during transition?