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Video instructions and help with filling out and completing Who 8850 Form Unemployment

Instructions and Help about Who 8850 Form Unemployment

Today we're going to look at cyclical unemployment unemployment correlated with the ups and downs of the business cycle using our friend the Fred database it's easy to see that unemployment increases during a recession when the economy is shrinking or growing only very slowly indeed low growth and high unemployment that's part of what define a recession lower growth is usually accompanied by high unemployment for two reasons first and most obviously when GDP is falling or growing more slowly than expected firms often lay off workers which generates unemployment the second reason is slightly more subtle higher on unemployment means that fewer workers are producing goods and services and when workers are sitting idle it's likely the capital is also sitting idle in an economy with idle labor and capital well it can't be maximizing growth although unemployment is clearly correlated with the business cycle the exact reasons why are debated by economists to see some of the issues notice for example that unemployment typically spikes quickly when growth declines but then it returns to more normal levels only slowly the unemployment rate spiked in 2022 for example as the economy declined by 2022 the economy was actually growing at a slow but steady rate of around 2% per year but unemployment didn't return to pre-recession levels for another five years why did it take so long for the unemployment rate to return to more normal levels think about a typical market say the market for apples unemployed apples in this case would be apples that aren't being bought now in a situation with high apple unemployment you'd have a higher quantity supplied than the quantity demanded at the current price so what would you expect to happen in this situation well ordinarily the price of apples would drop until the quantity supplied of apples equalled the quantity demanded and the market cleared however people are more complicated than Apple's and labor markets they don't seem to behave in quite this way even when there are lots of unemployed workers that is a higher quantity supplied of workers than the quantity demanded wages seem to fall more slowly and you would expect economists say that wages are sticky sticky wages reduce the incentives to hire more workers and they slow the adjustment process now sticky wages are puzzling and economists have a number of theories for why wages might be sticky probably the most important reason is that human beings get very upset when their wages fall especially if the fallen wages is obvious and appears to be caused by a person easily identifiable like an employer imagine that your employer cut your wages you'd probably be pretty upset you might even retaliate by working less hard or even by disrupting your workplace because of the fear of reducing morale employers are very reluctant to reduce nominal wages this graph for example shows the distribution of nonzero wage changes small increases in wages are common but small decreases in wages are very rare now even in a growing economy we'd expect to see wages to fluctuate like other prices with lots of small wage decreases as well as wage increases supply and demand are constantly changing but that's not what we see wages go up much more often than they go down if nominal wages are sticky in the downward direction it's going to take a long time to adjust to a shock that requires wages to fall especially if the inflation rate is low a point which we will return to in a later video unemployed workers may also take time to learn or to accept that their wages have fallen and workers may also be afraid to accept a low-quality job for fear of being branded a low-quality worker if you're a computer programmer you might not want to take a job at Starbucks even if you could get one or at least you might not want to put it on your resume so workers may want to search for a long time before they take a new job minimum wages and union contracts can also slow the adjustment of wages as they put legal or contractual limits on how low wages can go all of these mechanisms can lengthen the amount of time that it takes for unemployed workers to be rehired okay one final concept the natural rate of unemployment the natural rate is defined as the rate of unemployment that would occur if there were no cyclical unemployment in other words it's the rate of frictional plus structural unemployment now why do we care about the natural rate we care because economists think that under some conditions the government can reduce cyclical unemployment through fiscal and monetary policies things like spending more money cutting taxes or increasing the money supply these policies however are unlikely to change frictional or structural unemployment so when the unemployment rate is close to the natural rate that suggests that the scope for monetary and fiscal policy is diminished now unfortunately we can only ethe natural rate of unemployment it's not something that we observe this figure shows one eof the natural rate alongside the actual unemployment notice that by 2022 the actual unemployment rate was close to the natural rate so by this ethe time for fiscal and monetary policy had passed other estimates of the natural rate might suggest more room for policy clearly theories of cyclical unemployment are closely tied to theories of the business cycle why does an economy have booms and busts and two theories about how the government might use fiscal and monetary policy to smooth the business cycle so we will be revisiting all of these issues in future videos if you want to test yourself click practice questions or if you're ready to move on you can click go to the next video you can also visit mruniversity.com to see our entire library of videos and.

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