Unemployment

1
Unemployment

• By Chris Kaberle
• Tyler Morgan
• Michael Sither
• Aaron Thompson
• Brandon Young

2
Defining Unemployment

• The Bureau of Labor Statistics defines
  unemployment as
• the state when an individual is actively
  looking for a paying job but not having one.
• This includes all individuals seeking work or
  laid off for more then one week.

3
Brief History of Unemployment in the United States

• Throughout history in the United States, the
  unemployment rate has always been a major
  concern.
• During the great depression unemployment peaked
  at its highest ever. According to The Federal
  Reserve Board, over 25 of Americans were
  considered unemployed.
• The great depressions effects lasted through the
  1940s. It wasnt until the 1950s that the
  unemployment rates dropped back to a 5
  unemployment rate. The rate soared again to 10
  in the 1980s.
• However, today we have a stable unemployment rate
  of about 4.5.

4
The Feds affect on Unemployment

• To best understand the Federal Reserves role
  concerning the stability of unemployment, one can
  analyze the Phillips Curve and see that the
  Federal Reserve must perform a difficult
  balancing act between inflation and unemployment.
  

Inflation
Unemployment
5
Understanding Unemployment

• In order to understand unemployment and what
  exactly has led to the fluctuations of
  unemployment throughout history, we have to use
  different tools for analyzing unemployment.
• More specifically, as we analyze different trends
  in unemployment over the past decade or so, we
  can then deduce why these increases and decreases
  have occurred.
• Of course, there are a number of factors that can
  lead to these changes in unemployment like oil
  prices, fluctuations in consumer spending, and
  overall stability of the economy at that moment
  in time. However, the most useful statistics in
  understanding unemployment are how inflation
  rates are related to it, and the effects that the
  federal funds rate has on it as well.

6
Inflation
The Phillips Curve

• Inflation, as defined by Investopedia, is a
  sustained increase in the general level of prices
  for goods and services.
• In the late 1960s when the government was trying
  to use polices to reduce inflation rates and
  reduce unemployment rates, the Phillips curve was
  created to model this trade-off that exists
  between the two. Although there has been a
  slight amount of stagflation that has to be taken
  into account since then, the Phillips curve is
  still a very useful tool for explaining
  inflations effects on unemployment.

Inflation
Unemployment
7
Trends in the Phillips Curve
8
Comparing Unemployment to Inflation
9
Unemployment and the target federal funds rate

• Unemployment occurs because of a number of
  factors including technological innovations that
  can deplete a labor market, inadequate effective
  aggregate demand, and pessimistic business
  expectations.
• The federal funds rate fluctuates due to numerous
  factors as well, one of the more influential
  being unemployment.
• Again, we are always in search of full
  employment, stable prices, and rapid productivity
  growth, but there are trade-offs that have to be
  considered. The monetary policy of our economy
  is controlled by utilizing the federal funds
  rate.

10
How unemployment affects target federal funds
rate?

• When unemployment rates are high, the federal
  funds rate can be set slightly lower in order to
  encourage more consumer and business spending,
  which creates the need for more employment in the
  immediate future.
• On the other hand, when employment levels are
  near full, the economy will raise the federal
  funds rate in order to compensate for the
  temporary expansion that the economy is
  experiencing.
• Therefore, there is a negative correlation
  between target federal funds rate and
  unemployment as shown from past data that we have
  collected.

11
Trends in the target federal funds rate
12
Unemployment Rate
13
Constructing the Unemployment Statistics

• The Government conducts a monthly sample survey
  called the Current Population Survey (CPS) to
  measure the unemployment rate in the United
  States.
• The CPS has been conducted in the United States
  every month since 1940 and adjusted a few times
  since to reach what is currently the method used
  to find the unemployment rate.
• For the Bureau of Labor Statistics to conduct
  the surveys of unemployment,
  they first must define their
  sample.

14
The BLSs Conducting of Surveys

• The Current Population Survey is collected each
  month from a sample of approximately 72,000
  households from 754 areas and maintains a
  1.9-percent coefficient of variation on national
  monthly estimates of unemployment level.
• When researched, the coefficient of variation in
  common language is a ratio that represents the
  variation in one sample to the next and allows
  for more accurate comparisons between the
  different time periods of samples.

15
Macroeconomic Affect on the Labor Market

• Economists acknowledge three types of
  unemployment frictional, structural, and
  cyclical.
• Other factors to take into considerations are the
  changes in technology and productivity growth.
• Another concern regarding macroeconomic activity
  is the long run changes in demographic and
  cultural trends.

16
Methods of Collecting our Data

• The Bureau of Labor statistics is where our group
  collected most of our data used for graphical
  analysis. Here we found previous unemployment
  rates and inflation rates.
• The other three main sources our group focused
  our presentation around is a case study called
  The Unemployment Rate by professor Stephen
  Buckles at Vanderbilt University, the official
  website of the New York Federal Reserve bank, and
  a speech from the president and chief executive
  officer for the Federal Reserve Bank of Chicago,
  Michael H. Moskow.

17
Policy Recommendation

• The Federal Open Market Committee decided today
  to keep its target for the federal funds rate at
  5-1/4 percent based solely on indications
  provided by the unemployment data, while holding
  all other variables constant.
• Recent indicators have suggested somewhat firmer
  economic growth, and signs of a more stable labor
  market.
• We will continue to evaluate the unemployment
  rate and make the correct adjustments to the
  target federal funds rate as needed to maintain
  steady growth with out over heating of the
  economy.

18
Questions 1

• When unemployment rates are ________ the
  federal funds rate can be set slightly _________
  in order to encourage more consumer and business
  spending, which creates the need for more
  employment in the immediate future.
• a.) high, high
• b.) low, low
• c.) high, lower
• d.) low, higher
• CORRECT ANSWER C

19
Question 2

• The Bureau of Labor Statistics determines the
  unemployment rate by
• a.) comparing companies turnover rates
• b.) conducting household surveys
• c.) calculating the number of employees laid off
  from major Corporations
• d.) none of the above
• CORRECT ANSWER B

20
Question 3

• Economist acknowledge which types of
  unemployment
• a.) Structural
• b.) Frictional
• c.) Cyclical
• d.) All the above
• Correct Answer D

21
Question 4

• In the late 1960s when the government was
  trying to use polices to reduce inflation rates
  and reduce unemployment rates, the _____________
  was created to model this trade-off that
  exists between the two.
• a.) Phillips Curve
• b.) Bureau of Labor Statistics
• c.) Unemployment Rate
• d.) None of the above
• CORRECT ANSWER A

22
Question 5

• Unemployment is best defined as
• a.) the state when an individual is actively
  looking for a paying job but not having one.
• b.) getting fired from a job
• c.) voluntarily not looking for a job
• d.) none of the above
• CORRECT ANSWER A