DOCSLIB.ORG

Chapter 6: Unemployment Natural Rate of Unemployment Assumptions

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Chapter 6: Unemployment Natural Rate of Unemployment Assumptions 9/16/2013 Chapter 6: Unemployment Natural rate of unemployment . Natural rate of unemployment: The average rate of unemployment around which the economy fluctuates. In a recession, the actual unemployment rate rises above the natural rate. In a boom, the actual unemployment rate falls below the natural rate. CHAPTER 1 The Science of Macroeconomics 0 CHAPTER 6 Unemployment 1 Actual and natural rates of unemployment A first model of the natural rate in the U.S., 1960-2009 12 Notation: Unemployment rate 10 L = # of workers in labor force 8 E = # of employed workers labor force f 6 U = # of unemployed U/L = unemployment rate Percent o 4 Natural rate of unemployment 2 0 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 CHAPTER 6 Unemployment 3 Assumptions: The transitions between employment and unemployment 1. L is exogenously fixed. s E 2. During any given month, s = rate of job separations, the fraction of employed workers tha t become separa te d from the ir jo bs Employed Unemployed f = rate of job finding, fraction of unemployed workers that find jobs s and f are exogenous f U CHAPTER 6 Unemployment 4 CHAPTER 6 Unemployment 5 1 9/16/2013 The steady state condition Finding the “equilibrium” U rate . Definition: the labor market is in f U = sE steady state, or long-run equilibrium, if the unemployment rate is constant. = s(L –U ) . The steady-state condition is: = sL – sU s E = f U Solve for U/L: (f + s)U = sL # of employed people who # of unemployed so, Us lose or leave people who find their jobs jobs Lsf CHAPTER 6 Unemployment 6 CHAPTER 6 Unemployment 7 Example: Policy implication . A policy will reduce the natural rate of . Each month, unemployment only if it lowers s or increases f. 1% of employed workers lose their jobs (s = 0.01) . 19% of unemployed workers find jobs (f = 0. 19) . Find the natural rate of unemployment: Us 001. 0. 05, or 5% Lsf001.. 019 CHAPTER 6 Unemployment 8 CHAPTER 6 Unemployment 9 Why is there unemployment? Job search & frictional unemployment . If job finding were instantaneous (f = 1), . frictional unemployment: caused by the time then all spells of unemployment would be brief, it takes workers to search for a job and the natural rate would be near zero. occurs even when wages are flexible and there are enough jobs to go around . There are two reasons why f < 1: 1. job search . occurs because 2. wage rigidity . workers have different abilities, preferences . jobs have different skill requirements . geographic mobility of workers not instantaneous . flow of information about vacancies and job candidates is imperfect CHAPTER 6 Unemployment 10 CHAPTER 6 Unemployment 11 2 9/16/2013 CASE STUDY: Sectoral shifts Structural change over the long run . def: Changes in the composition of demand Agriculture Manufacturing among industries or regions. 1960 2006 Other industry . example: Technological change Services more jobs repairing computers, 57.9% 76.5% fewer jobs repairing typewriters . example: A new international trade agreement labor demand increases in export sectors, 4.2% decreases in import-competing sectors 1.1% . These scenarios result in frictional unemployment 9.9% 13.9% 28.0% 8.5% CHAPTER 6 Unemployment 12 More examples of sectoral shifts Public policy and job search . Industrial revolution (1800s): Govt programs affecting unemployment include: agriculture declines, manufacturing soars . Govt employment agencies . Energy crisis (1970s): disseminate info about job openings to better demand shifts from larger cars to smaller ones match workers & jobs. Public job training programs . HlthHealth care spen ding as %fGDP% of GDP: help workers displaced from declining industries 1960: 5.2% 2000: 13.8% get skills needed for jobs in growing industries. 1980: 9.1% 2007: 16.2% In our dynamic economy, smaller sectoral shifts occur frequently, contributing to frictional unemployment. CHAPTER 6 Unemployment 14 CHAPTER 6 Unemployment 15 Unemployment insurance (UI) Benefits of UI . UI pays part of a worker’s former wages for a limited time after losing his/her job. By allowing workers more time to search, UI may lead to better matches between . UI increases search unemployment, jobs and workers, because it reduces . the opportunity cost of being unemployed which would lead to greater productivity and higher incomes. the urgency of finding work . f . Studies: The longer a worker is eligible for UI, the longer the duration of the average spell of unemployment. CHAPTER 6 Unemployment 16 CHAPTER 6 Unemployment 17 3 9/16/2013 Why is there unemployment? Unemployment from real wage rigidity Real Supply Us The natural rate of unemployment: If real wage is wage Lsf stuck above Unemployment its eq’m level, . Two reasons why f < 1: then there Rigid aren’ t enough real DONE 1. job search jobs to go wage Next 2. wage rigidity around. Demand Labor Amount of Amount of labor labor hired willing to work CHAPTER 6 Unemployment 18 CHAPTER 6 Unemployment 19 Unemployment from real wage rigidity Reasons for wage rigidity If real wage is 1. Minimum wage laws stuck above Then, firms must ration the its eq’m level, scarce jobs among workers. 2. Labor unions then there aren’ t enough 3. jobs to go Efficiency wages around. Structural unemployment: The unemployment resulting from real wage rigidity and job rationing. CHAPTER 6 Unemployment 20 CHAPTER 6 Unemployment 21 1. The minimum wage 2. Labor unions . The min. wage may exceed the eq’m wage of unskilled workers, especially teenagers. Unions exercise monopoly power to secure higher wages for their members. Studies: a 10% increase in min. wage . When the union wage exceeds the eq’m wage, reduces teen unemployment by 1-3% unemppyloyment results. But, the min. wage cannot explain the . Insiders: Employed union workers whose interest majority of the natural rate of unemployment, is to keep wages high. as most workers’ wages are well above the min. wage. Outsiders: Unemployed non-union workers who prefer eq’m wages, so there would be enough jobs for them. CHAPTER 6 Unemployment 22 CHAPTER 6 Unemployment 23 4 9/16/2013 Union membership and wage ratios by industry, 2008 3. Efficiency wage theory # employed U % of wage industry (1000s) total ratio . Theories in which higher wages increase worker Private sector (total) 108,073 7.6% 123.2 productivity by: Government (total) 21,305 36.8 120.5 Construction 7,652 15.6 151.8 . attracting higher quality job applicants Mining 776 6.9 102.1 . increasing worker effort, reducing “shirking” Manufacturing 15,131 11.4 108.6 . reducing turnover , which is costly to firms Retail trade 14,987 5.2 106.6 . improving health of workers Transportation 4,639 21.3 126.3 (in developing countries) Finance, insurance 6,536 1.3 88.7 . Firms willingly pay above-equilibrium wages to Professional services 11,967 2.1 97.4 raise productivity. Education 3,657 13.8 117.1 Health care 15,184 8.0 116.0 . Result: structural unemployment. CHAPTER 6 25 wage ratio = 100(union wage)/(nonunion wage) slide 24 Unemployment NOW YOU TRY: The duration of U.S. unemployment, Question for Discussion average, Jan 1960 – June 2009 time spent # of unemployed . Use the material we’ve just covered to come unemployed persons in group up with a policy or policies # of weeks by this group (% of all to try to reduce the natural rate of unemployed (% of time spent unemployed unemployed unemppyloyment. persons) by all groups) . Note whether your policy targets frictional or structural unemployment. 1-4 42% 8.1% 5-14 30% 21.5% 15 or more 27% 70.4% TREND: The natural rate rises over 1960-84, The duration of unemployment then falls over 1985-2005 . The data: 9 . More spells of unemployment are short-term 8 than medium-term or long-term. Yet, most of the total time spent unemployed is 7 labor force attributable to the long-term unemployed. f . This long-term unemployment is probably 6 structural and/or due to sectoral shifts among Percent o 5 vastly different industries. Knowing this is important because it can help us 4 craft policies that are more likely to work. 3 CHAPTER 6 Unemployment 28 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 5 9/16/2013 EXPLAINING THE TREND: The real minimum wage EXPLAINING THE TREND: The minimum wage and natural u-rate have Union membership $9 similar trends. Since early 1980s, the natural rate $8 Union membership selected years and union $7 membership year percent of labor force have both fallen. $6 minimum wage er hour 1930 12% in 2009 dollars But, from 1950s p $5 1945 35% to about 1980, $4 the natural rate 1954 35% Dollars $3 rose while union minimum wage in 1970 27% membership fell. $2 current dollars 1983 20.1% $1 2008 12.4% $0 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2006-present: EXPLAINING THE TREND: oil price volatility increases – EXPLAINING THE TREND: Sectoral shifts will the natural u-rate rise again? Demographics 140 1986-2005: oil prices less . 1970s: 120 volatile, so fewer sectoral shifts The Baby Boomers were young. Young workers change jobs more frequently 100 1970-1986: volatile (high value of s). oil prices create Price per 80 barrel of oil, jarring sectoral shifts . La te 1980s throug h to day: in 2009 60 Baby Boomers aged. Middle-aged workers dollars change jobs less often (low s). 40 20 0 33 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 CHAPTER 6 Unemployment Unemployment in Europe, 1960-2008 Why unemployment rose in Europe 13 but not the U.S. 12 Shock 11 Technological progress has shifted labor demand 10 from unskilled to skilled workers in recent 9 decades.
Load more

Recommended publications
  • Structural Unemployment in the 2008 Recession Anton A
    Authorized for public release by the FOMC Secretariat on 02/09/2018 Structural Unemployment in the 2008 Recession Anton A. Cheremukhin Federal Reserve Bank of Dallas January 12, 2011 Summary A number of questions have been raised recently regarding the sharp increase in unemployment and slow recovery of jobs throughout the 2008 recession. 1) How much of that unemployment surge is structural, and how much is frictional? 2) Is there mismatch between the demand for and supply of workers across industries? The goal of this memo is to try to answer these questions exploring data on aggregate and sectoral job and worker stocks and ows. To have a clear understanding of the questions, it is useful to de ne the di¤erence between structural and frictional unemployment. Structural unemployment usually refers to unemployment that results from a mismatch between the characteristics of jobs supplied and demanded, while frictional unemployment is thought to be a consequence of mismatch in their quantities1. Frictional unemployment is manifested by high labor supply coexisting with slack demand for work. An indication of structural unemployment would be unusually high unmatched demand for workers coexisting with high labor supply. A standard way to analyze changes in structural unemployment is to look at the Beveridge curve - the relationship between unemployment and vacancy rates (Figure 1). When unemployment is frictional, high labor supply coexists with slack labor demand: times of higher unemployment should be times with lower numbers of vacant jobs. This corresponds to a downward sloping relationship 1 Here I merge the notions of frictional and cyclical unemployment.
    [Show full text]
  • Minimum Level of Unemployment and Public Policy
    Upjohn Press Upjohn Research home page 1-1-1980 Minimum Level of Unemployment and Public Policy Frank Cook Pierson Swarthmore College Follow this and additional works at: https://research.upjohn.org/up_press Part of the Labor Economics Commons, and the Public Policy Commons Citation Pierson, Frank C. 1980. Minimum Level of Unemployment and Public Policy. Kalamazoo, MI: W.E. Upjohn Institute for Employment Research. https://doi.org/10.17848/9780880995832 This work is licensed under a Creative Commons Attribution-Noncommercial-Share Alike 4.0 License. This title is brought to you by the Upjohn Institute. For more information, please contact [email protected]. Theo o _ _ LevdLof Unemployment and Riblic Iblicy Frank C» Herson The©O O _ TLeveLof Unemployment and ftibliclbliey Frank C. Pierson Swarthmore College THE W.E. UPJOHN INSTITUTE FOR EMPLOYMENT RESEARCH Library of Congress Cataloging in Publication Data Pierson, Frank Cook, 1911- The minimum level of unemployment and public policy. 1. Unemployment United States. 2. United States Full employment policies. I. Title. HD5724.P475 339.5©0973 80-26536 ISBN 0-911558-76-4 ISBN 0-911558-75-6 (pbk.) Copyright 1980 by the W. E. UPJOHN INSTITUTE FOR EMPLOYMENT RESEARCH 300 South Westnedge Ave. Kalamazoo, Michigan 49007 THE INSTITUTE, a nonprofit research organization, was established on July 1, 1945. It is an activity of the W. E. Upjohn Unemployment Trustee Corporation, which was formed in 1932 to administer a fund set aside by the late Dr. W. E. Upjohn for the purpose of carrying on "research into the causes and effects of unemployment and measures for the alleviation of unemployment." The Board of Trustees of the W.
    [Show full text]
  • The Recent Evolution of the Natural Rate of Unemployment
    FEDERAL RESERVE BANK OF SAN FRANCISCO WORKING PAPER SERIES The Recent Evolution of the Natural Rate of Unemployment Mary Daly Federal Reserve Bank of San Francisco Bart Hobijn Federal Reserve Bank of San Francisco Rob Valletta Federal Reserve Bank of San Francisco January 2011 Working Paper 2011-05 http://www.frbsf.org/publications/economics/papers/2011/wp11-05bk.pdf The views in this paper are solely the responsibility of the authors and should not be interpreted as reflecting the views of the Federal Reserve Bank of San Francisco or the Board of Governors of the Federal Reserve System. The Recent Evolution of the Natural Rate of Unemployment MARY DALY,* BART HOBIJN, AND ROB VALLETTA Federal Reserve Bank of San Francisco 101 Market Street San Francisco, CA 94105 January 17, 2011 ABSTRACT The U.S. economy is recovering from the financial crisis and ensuing deep recession, but the unemployment rate has remained stubbornly high. Some have argued that the persistent elevation of unemployment relative to historical norms reflects the fact that the shocks that hit the economy were especially disruptive to labor markets and likely to have long lasting effects. If such structural factors are at work they would result in a higher underlying natural or non- accelerating inflation rate of unemployment, implying that conventional monetary and fiscal policy should not be used in an attempt to return unemployment to its pre-recession levels. We investigate the hypothesis that the natural rate of unemployment has increased since the recession began, and if so, whether the underlying causes are transitory or persistent.
    [Show full text]
  • Epi Briefing Paper Economic Policy Institute • February 9, 2015 • Briefing Paper #389
    EPI BRIEFING PAPER ECONOMIC POLICY INSTITUTE • FEBRUARY 9, 2015 • BRIEFING PAPER #389 THE FEDERAL RESERVE AND SHARED PROSPERITY Why Working Families Need a Fed that Works for Them BY THOMAS PALLEY ECONOMIC POLICY INSTITUTE • 1333 H STREET, NW • SUITE 300, EAST TOWER • WASHINGTON, DC 20005 • 202.775.8810 • WWW.EPI.ORG Table of contents Introduction and executive summary ........................................................................................................................3 Full employment, shared prosperity, and the Federal Reserve ...................................................................................3 Policy challenges and threats.....................................................................................................................................4 Institutional concerns and policy engagement ..........................................................................................................6 Why the Federal Reserve matters, and why working-family advocates should engage it.........................................6 Full employment, shared prosperity, and the Federal Reserve ..................................................................................3 The Federal Reserve and full employment................................................................................................................8 Irony of the moment and need for a strategy ............................................................................................................8 Policy challenges and threats......................................................................................................................................4
    [Show full text]
  • Research on the Increase in Structural- Frictional Unemployment (Interim
    Research on the Increase in Structural- Frictional Unemployment (Interim Report) (Summary) The Japan Institute for Labour Policy and Training Research on the Increase in Structural-Frictional Unemployment (Interim Report) (Summary) Authors Haruhiko Hori (Researcher, the Japan Institute for Labour Policy and Training) Hirokazu Fujii (Principal Labour Economist, Councilors Office (Labour Policy) to Director General for Policy Planning and Evaluation, the Ministry of Health, Labour and Welfare) Naofumi Sakaguchi (Researcher, the Institute for Research on Household Economics) Jiro Nakamura (Professor, Tokyo Metropolitan University) Tamaki Sakura (Researcher, Kokumin Keizai Research Institute) Research period Fiscal year 2002 to 2003 Objective of the research and survey According to the estimate taken by the Ministry of Health, Labour and Welfare’s Councilors Office , more than 80 percent of the unemployment rate is composed of structural-frictional unemployment. The Ministry of Health, Labour and Welfare employs the U-V curve to calculate the structural-frictional unemployment rates. It has been pointed out, however, that there are a number of problems related to obtaining the structural-frictional unemployment rates by using the U-V curve. For example, the intersection between the U-V curve and the forty-five degree line is merely one of the standards for measuring the imperfection of the labor market, and there are no theoretical grounds that it can be used as an indicator of structural-frictional unemployment rates. Since shift variables of the U-V curve are not considered in the model when plotting the U-V curve, the U-V curve’s shift cannot be identified. It has also been mentioned that there are problems related to the data used for calculating structural-frictional unemployment rates.
    [Show full text]
  • World Youth Report
    WORLD YOUTH REPORT YOUTH AND THE 2030 AGENDA FOR SUSTAINABLE DEVELOPMENT WORLD YOUTH REPORT YOUTH AND THE 2030 AGENDA FOR SUSTAINABLE DEVELOPMENT WORLD YOUTH REPORT YOUTH AND THE 2030 AGENDA FOR SUSTAINABLE DEVELOPMENT UNITED NATIONS DEPARTMENT OF ECONOMIC AND SOCIAL AFFAIRS NEW YORK, 2018 World Youth Report Published by the United Nations New York, New York 10017 United States of America United Nations Publication Sales No.: E.18.IV.7 ISBN: 978-92-1-130349-0 eISBN: 978-92-1-363256-7 Copyright © United Nations, 2018 All rights reserved All queries or rights and licenses including subsidiary rights should be addressed to United Nations Publications, 405 E. 42nd Street, New York, NY 10017, United States of America; email: [email protected]; website: un.org/publications. Note: The designations employed and the presentation of the material in this publication do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country or territory or of its authorities, or concerning the delimitations of its frontiers. The term “country” as used in the text of the present report also refers, as appropriate, to territories or areas. The designations of country groups in the text and the tables are intended solely for statistical or analytical convenience and do not necessarily express a judgment about the stage reached by a particular country or area in the development process. Mention of the names of firms and commercial products does not imply the endorsement of the United Nations. Technical Note: In this publication, unless otherwise indicated, the term “youth” refers to all those between the ages of 15 and 24, as reflected in the World Programme of Action for Youth.
    [Show full text]
  • Effects of the Minimum Wage on Employment Dynamics
    Effects of the Minimum Wage on Employment Dynamics∗ Jonathan Meer† Jeremy West Texas A&M University and NBER Texas A&M University December 2013 Abstract The voluminous literature on minimum wages offers little consensus on the extent to which a wage floor impacts employment. For both theoretical and econometric reasons, we argue that the effect of the minimum wage should be more apparent in new employment growth than in employment levels. In addition, we conduct a simulation showing that the common practice of including state-specific time trends will attenuate the measured effects of the minimum wage on employment if the true effect is in fact on the rate of job growth. Using three separate state panels of administrative employment data, we find that the minimum wage reduces net job growth, primarily through its effect on job creation by expanding establishments. These effects are most pronounced for younger workers and in industries with a higher proportion of low-wage workers. JEL codes: J21, J23, J38, J63 ∗We benefited greatly from discussions regarding data with Ronald Davis, Bethany DeSalvo, and Jonathan Fisher at the U.S. Census Bureau, and Jean Roth at NBER. We are grateful to Jeffrey Brown, Jesse Cunha, Jennifer Doleac, David Figlio, Craig Garthwaite, Daniel Hamermesh, Mark Hoekstra, Scott Imberman, Joanna Lahey, Michael Lovenheim, Steven Puller, Harvey S. Rosen, Jared Rubin, Juan Carlos Saurez Serrato, William Gui Woolston, and participants at the Texas A&M Applied Microeconomics seminar, the Stata Texas Empirical Microeconomics workshop, and the Naval Postgraduate School for valuable comments. Sarah Armstrong and Kirk Reese provided valuable research assistance.
    [Show full text]
  • Labor Situation in Japan and Analysis 2004/2005 Labor Situation in Japan and Analysis 2004/2005
    JILPT Labor Situation in Japan and Analysis 2004/2005 Labor Situation in Japan and Analysis 2004/2005 The Japan Institute for Labour Policy and Training The Japan Institute for Labour Policy and Training Printed on Recycled Paper The Japan Institute for Labour Policy and Training The objective of The Japan Institute for Labour Policy and Training is to contribute to the planning of labour policies and work toward their effective and efficient implementation, as well as to promote the livelihood of workers and the development of the national economy by conducting comprehensive research projects regarding labour issues and policies, both domestically and internationally, and capitalize on the findings of such research by sponsoring training programs for administrative officials. The Institute will concentrate our effort in the following areas. 1. Comprehensive Research on Labour Policies The following research themes have been decided. (1) Contribute to the formulation of an employment strategy centering on systematic implementation and assessment of employment promoting measures and the creation of jobs that match the regional situation. (2) Contribute to upgrading the supply/demand adjustments of the labour market, including adequate responses to employment issues for the young, middle-aged and older workers and to a vocational information system. (3) Contribute to the development of an infrastructure for the corporate management of human resources and ability development, and to restructuring the system determining working conditions while accurately monitoring changes in corporate structure and behavior. (4) Contribute to building a social system in which one's private and working life are in harmony with each other, and to developing an environment allowing for diverse working styles, indispensable for such a system.
    [Show full text]
  • Macroeconomic Effects of Selective Public Employment and Wage
    MARTIN NEIL BAILY Yale University JAMES TOBIN Yale University MacroeconomicEffects of Selective Public Employment and Wage Subsidies DIRECT JOB CREATION and selective wage subsidies are policies de- signed to alter the mix of employmentin favor of workerswho, in the normal course of economic events, experiencehigh rates of unemploy- ment. As instrumentsof macroeconomicpolicy, these measuresare in- tendedto mitigatethe conflictbetween society's goals for unemployment and inflation.The hope is to "cheatthe Phillipscurve." For the shortrun, as in the currentcyclical recovery, this meansto diminishthe inflationary consequencesof higherrates of employment.For the long run, it means to diminishthe naturalrate of unemployment-or, to use a more neutral term, the minimal nonaccelerating-inflationrate of unemployment Note: This paper presents the analytical framework for the principal arguments, and some related empirical evidence, underlying a paper, "Direct Job Creation, Infla- tion, and Unemployment,"delivered by the authors at the Conference on Direct Job Creation sponsored by the Brookings Institution and the Institute for Research on Poverty, held in Washingtonin April 1977. The conference paper, as revised, will be published in a Brookings volume devoted to the papers presented at the conference. We would like to thank participantsin the conference for helpful comments, and to acknowledge with gratitude the excellent research assistance of Richard Kolsky, Hiroshi Yoshikawa, and David Coppock. We are grateful also for the financial sup- port provided by the institutions sponsoring the conference and by the National Science Foundation. 511 512 Brookings Papers on Economic Activity, 2:1977 (NAIRU). In general,the purposeis to allow standardfiscal and mone- tary policy to achieve more satisfactoryjoint paths of output, employ- ment, andprices.
    [Show full text]
  • Growth and Change in South Dakota Labor Markets an Assessment of the State’S Labor Market Imbalances in a Weak National Recovery
    Growth and Change in South Dakota Labor Markets An Assessment of the State’s Labor Market Imbalances in a Weak National Recovery Neeta P. Fogg and Paul E. Harrington February 2014 Table of Contents Introduction ..................................................................................................................................... 1 Summary of Key Findings .............................................................................................................. 2 Population and Labor Force ........................................................................................................ 2 Labor Market Imbalances ............................................................................................................ 4 Job Growth and Job Market Imbalances ..................................................................................... 5 Population Developments ............................................................................................................... 7 Overall Population Developments .............................................................................................. 7 Characteristics of Migration ...................................................................................................... 11 Working Age Population Developments ...................................................................................... 12 Race-Ethnicity ........................................................................................................................... 13 Age ...........................................................................................................................................
    [Show full text]
  • Why Is the Unemployment Rate So High at Full Employment?
    ROBERT E. HALL* Massachusetts Institute of Technology hy Is the Unemployment Rate So igh at Full E ployment? THE OUTSTANDING PROBLEM of contemporary macroeconomic policy in the United States is the unfavorable trade-off that exists between unem- ployment and inflation. Many economists have studied this phenomenon in detail,1 and there is practically universal agreement that low unemploy- ment rates imply high rates of wage and price inflation, or, equivalently, wage and price stability requires a high rate of unemployment. In short, the Phillips curve has an unfavorable location in the unemployment- inflation diagram, passing far above and to the right of the point of low unemployment and wage stability. There are many interesting ways to examine this problem; my purpose in this paper is to study it only in the way suggested by the title. That is, I will look into the nature of the unem- ployment that remains when labor markets are reasonably tight and the economy seems to be at full employment. Most of my data are observations on individuals, collected in a variety of surveys, rather than macroeconomic aggregates. * This paperdraws on researchsupported by a grantfrom the ManpowerAdministra- tion, U.S. Departmentof Labor, under provisionsof the ManpowerDevelopment and TrainingAct of 1962. Earlierwork was supportedby the Office of Economic Oppor- tunity. The author is solely responsiblefor the opinions expressed. 1. In particular,see Robert J. Gordon, "The Recent Accelerationof Inflationand Its Lessons for the Future," Brookings Papers oniEconzomic Activity (1: 1970), pp. 8-41; and George L. Perry,"Changing Labor Marketsand Inflation,"Brookiilgs Papers oil Eco- tnomicActivity (3:1970), pp.
    [Show full text]
  • Trade and Frictional Unemployment in the Global Economy∗
    trade and frictional unemployment in the global economy∗ C´elineCarr`erey Anja Grujovicz Fr´ed´ericRobert-Nicoudx May 30, 2016 Abstract We develop a multi-country, multi-sector trade model with labor market frictions and equilib- rium unemployment. Trade opening leads to a reduction in unemployment if it raises real wages and reallocates labor towards sectors with lower-than-average labor market frictions. We estimate sector-specific labor market frictions and trade elasticities using employment data from 25 oecd countries and worldwide trade data. We then quantify the potential unemployment and real wage effects of implementing the Transatlantic Trade and Investment Partnership (ttip) or the Trans- Pacific Partnership (tpp), and of eliminating trade imbalances worldwide. The unemployment and real wage effects work in conflicting directions for some countries under some trade regimes, such as the us under ttip. We introduce a welfare criterion that accounts for both effects and splits such ties. Accordingly, us welfare is predicted to decrease under ttip and increase under tpp. Keywords: labor market frictions, unemployment, trade JEL Classification: F15, F16, F17, J64 ∗We thank conference participants at the Barcelona gse Summer School 2014, degit xix 2014 in Nashville, degit xx 2015 in Geneva, etsg 2015 in Paris, rief 2014 at eth Zurich, r4d workshop at the ilo, 6th cepr Villars Research Workshop, seminar participants at the University of Bayreuth, University of Geneva, University of Nottingham, Universit´e Paris 1 Panth´eon-Sorbonne, Princeton University, as well as Arnaud Costinot, Swati Dhingra, Hartmut Egger, Peter Egger, Thibault Fally, Marco Fugazza, Benedikt Heid, Mario Larch, Monika Mrazova, J´er´emy Laurent-Lucchetti, Viet Anh Nguyen, Marcelo Olarreaga, Domenico Tabasso, Richard Upward, Yoto Yotov, and especially Oleg Itskhoki and Michele Pellizzari for discussions and feedback.
    [Show full text]