1. U.S. Labor Market and Unemployment (4*5-20pts) The following graph shows the
ID: 1111220 • Letter: 1
Question
1. U.S. Labor Market and Unemployment (4*5-20pts) The following graph shows the U.S. civilian unemployment rate seasonally adjusted data in 1990-2017 What are the patterns for the unemployment rate? List at least three. What do you expect the future path of unemployment rate? Explain. Discuss the natural rate of unemployment, frictional unemployment unemployment in the context of the graph. Which type of the unemployment is the most like driving force of the trend? Explain. a. b. c. and structur d. How do you explain the long duration of unemployment during and after the recession? Bas on your explanation, what are the policy implications? [Hint: Demand-Supply Model] Percent 11.0 10.0 9.0 8.0 7.0 6.0 5.0 T11.0 10.0 October 2017 4.1 percent 9.0 8.0 7.0 6.0 5.0 4.0 3.0 4.0 t 3.0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016Explanation / Answer
a)1. unemployment rate do fluctuate overtime. during deep recessions od 2007-2009 , unemployment reached roughly 10%. for comparisons , during the great depression of 1930s,the uneployment rate reached almost 25% of the labor force.
2. unemployment rate in the late 1990s and into the mid 2000s , was rather low historically. it was below 5% in 1997 to 2000 and near 5% almost over 2006-2007.
3. the unemployment rate never reaches zero. infact, it never seems to get below 3%
4. the timings of rising and downfalls of unemployment rate matches fairly with the timings of upswings and downswings in the economy. during the period of recession and depression , unemployment is high.
b)although th labor market has slowly begun to recover, the unemployment remains stubbornly high. the pace at which unemplyment comes down over the next two years depends upon the cyclical recovery of labor force participation and the extend to which that offsets or adds to ongoing structural changes in labor force behavior related to increased school enrollment , access to disability benefits , and movement of baby boomers into retirement.
c) natural rte of unemployment- it is the rate of unemployment arising from all sources except fluctuations in aggregate demand. estimates of potential gdp are based on the long term natural rate of employment. the short term natural rte incorporates structural factors that are temporarily boosting the natural rate beginning in 2008.
frictional rate of unemployment-it is when workers leave their jobs to find better ones. its actually a voluntary exit but also result from a layoff or termination with cause. frictio is the time, effort , and the expense it takes te workers to find a new job.
structural rate-it is a longer - lasting form of unemploment caused by fundamental shifts in a economy and exacerbated by extraneous factors such as technology, competition, and the govt policies. there been a rise in the US structural unemploment.
structural emloyment is the driving force of the trends because it reflects deeper problems such as gap between the skill workershave and those that employers want. it doesn't necessarily disappears as the economy recovery gains traction.
d) during the recent recession, unemployment duration reachd levels well above those of past downturns. reasons can be-
1. the changing demographic characteristics of the labor force
2. another factor can be the extension of unemployment insurance benefits from the normal 26 weeks for most eligible workers.
3. upswings and downswings in the economy also explains unemployment. during recession , unemploment rate was high
4. inflation and unemploment rate has an inverse relationship . low inflation rate explains high unemployment rate.
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