Monitoring Job

and price LevelMicroeconomic Foundation

Alaleh Mani

2011

Employment termsPopulati

onOlds, Kids,

people in jail,

hospital, institutes

Working Age

Population

Labor Force

Unemployed

Full effort searchin

g in 4 weeks

Discourage

people in

recessionWaiting

list

Start a new job

Return back

Employed

Part-time Full-time

Others

Retired populati

on

GotoSchool people

Not willing to

work

Labor Market Indicator

The unemployment rate=Unemployement

Labor Force

The labor force participant rate=LaborForce

working age

The employment to Population rate=Employment

working age

Trends

Coincide and

Opposite

Downward

Women Participate

more Men Participate

less

1.Short work Hour2.Higher Productivity3.White Collar job4.Free time due to

technology

1.Men stay at school more2.Retired early

Same trend but below is

more fluctuated

Aggregate Hours Productivity or GDP does not measured by number of worker in

different full or part time jobs, whereas it is calculated by total hours of work full or part in a year which is known as AGGREGATE HOURE.

Aggregate hour has increasing trend with a lag relative to employment rate trend

Average hour per worker is decreasing due to population of working age

The trend fluctuation caused by Business cycle

Real wage rate

An hour work purchase how much goods and services in dollars= real wage rate=economic variable = good measure for labor rewarding growing trend ≈

GDP growth ≈ productivity growth

3 different calculation:

1.Department of labor: wage of private manufacturing nonsupervisory worker

(lowest)

2.National income and product accounts:

Wage and salary in an hour (broader than first)

3.wages, salary and supplementary(fringe benefits: pension fund, health

insurance) (highest)

Unemployment , Full

employmentUnemploye

d

Discourage people in recession

Waiting list

entrance

reentrance

Full effort searching in 4 weeks

reentrance

reentrance

Job leaver

Job loser

Reentrance

50% of

unemploym

ent are job

loser with

wild

fluctuation

Smallest

constant

number of

unemploym

ent

5 to 14

weeks

Young

and

black

people

Teenagers are

often unemployed

because:

1. The leave job

more frequently

to find right one

2. Part time jobs

are temporary

for teenagers

3. The are student

and out of labor

group

Unemployment Types

Frictional:

Normally people enter and leave the jobspend time to search for a job that suit them best ; exp: baby booming / unemployment insurance and benefit

Normally some job created or destructed incur cost to advertize to absorb best employee

different between Rate of entrance and leaving job for people and different between rate of creating and vanishing job = number of frictional jobless

Structural:

technology and competition need skilled worker unskilled people leave to get training or join the discourage people painful for old

(Schweser typical question )

Cyclical:

The employment situation hike and fall by business cycle coincide but contrary to expansion and recession and downsize( schweser typical question)

Full employment=frictional and structural unemployment

Unemployment rate at full employment= natural unemployment ate

Potential GDP

Fluctuate around real GDP

Fluctuate around real uneploymentGDP at full employment with no cycle

REAL GDP peak occurs at trough of Unemployment

rate

CPI=Consumer Price Index=Price level

To measure cost of living and value of

money

The Price is paid by Urban Consumer for Fix

basket

Constructing CPI in 3 stage

Stage 1.

Select the CPI basket for all

urban(CPI-U)which is broader wage

earner (CPI-W)

Stage2.

Conducting the monthly price survey

BLS (Bureau of Labor Statistics) conduct survey for

80000 items in 8 group in 30 cities

Stage3

Calculating the CPI:

CCC=Cost of Current CPI basket=ΣPrice*Quantity

CBC=Cost of Base-period CPI basket

CPI=CCC*100/CBC Point NOT PERCENTAGE(CFA

2009)

CPI in base year=100 Point

Measure Inflation

Inflation is the annual change of price

level

Inflation rate=CPI this year-CPI last year *100

a percentage

CPI last year *100

CPI biased New good bias:

New technology introduce new goods in basket that did not exist in base basket

Quality change bias:

quality rise so payment for quality rise that take mistake by inflation and exclude from calculation

Commodity substitution bias:

Some commodity vanish some other substitute

Outlet substitution bias:

Outlet substitute convenient store to cut the cost and use the discount price

Consequence of CPI bias

CPI bias OVERVALUE the inflation by almost

1.1 percentage point a year (exam 2009)

Distort private contract:

Wage contract based on biased CPI make

worker earns more than real income

Increase government outlay (spend money)

To reduce the Bias the survey and calculation

should be more frequent