Professor Christina Romer. LECTURE 19 EMPLOYMENT AND UNEMPLOYMENT IN THE LONG RUN March 31, 2016

Transcription

1 Economics 2 Spring 2016 Professor Christina Romer Professor David Romer LECTURE 19 EMPLOYMENT AND UNEMPLOYMENT IN THE LONG RUN March 31, 2016 I. OVERVIEW II. HISTORICAL EVIDENCE OF TECHNOLOGICAL CHANGE A. New production techniques B. New goods C. Better institutions III. SOURCES OF TECHNOLOGICAL PROGRESS A. Supply and demand diagram for invention B. Factors that could shift the supply and demand curves C. Policies to encourage technological progress IV. EMPLOYMENT AND POTENTIAL OUTPUT A. Effects of an increase in N*/POP B. Effects of an increase in POP V. DETERMINANTS OF THE NORMAL EMPLOYMENT-TO-POPULATION RATIO AND THE NORMAL REAL WAGE A. Review and modification of labor supply/labor demand diagram B. Change in workers tastes (Married women) C. Change in labor demand (Low-skilled males) D. The large rise in real wages over time VI. THE NATURAL RATE OF UNEMPLOYMENT A. Definition B. Job rationing C. Job search

2 Economics 2 Spring 2016 Christina Romer David Romer LECTURE 19 Employment and Unemployment in the Long Run March 31, 2016

3 Midterm 2 Logistics: Announcements Thursday, April 7, 3:30 5:00 Sections 109, 110, 111, 112 (GSIs Dounia Saeme and Jeanette Ling) go to 245 Li Ka Shing Center (corner of Oxford and Berkeley Way). Everyone else come to the usual room (2050 VLSB). You do not need a blue book; just a pen.

4 Midterm Format: Announcements (continued) Sample midterm. Problems; true/false/uncertain questions; multiple choice. Midterm Coverage: All of the material since the first midterm (starting with monopoly) and up through lecture on April 5 th (saving and investment). Lecture, section, textbook, and additional readings.

5 Announcements (continued) Places to Get Help: Professor Office Hours: Monday, April 4 th, 3:30-5:30. No office hours on Wednesday, April 6 th. GSI office hours. Review session on Tuesday, April 5 th, 5:15-6:30 p.m. in 2050 VLSB.

6 I. OVERVIEW

7 Material for Today Finish up discussion of technological change. Move on to discussion of employment and unemployment in the long run.

8 Aggregate Production Function (1) (2) (3)

9 Technological change is a key determinant of economic growth. Argument by elimination: If it is not N*/POP or K*/N*, it must be T.

10 II. HISTORICAL EVIDENCE OF TECHNOLOGICAL CHANGE

11 New Production Techniques New machines (electric motor) New methods of organization and management (assembly line, accounting).

12 Early Textile Mill

13 Modern Textile Factory

14 New Products Another way to create improvements in the standard of living.

15

16 Better Institutions Opening up to trade (U.S.) More reliance on market forces (China) More stable governments and more secure property rights

17 III. SOURCES OF TECHNOLOGICAL PROGRESS

18 Market for Inventions P S 1 P 1 D 1 Q 1 Q

19 Factors Increasing the Supply of Inventions P P 1 P 2 S 1 S 2 1. Luck 2. Education 3. Spillovers from investment Q 1 Q 2 D 1 Q 4. More secure property rights 5. Others?

20 Factors Increasing the Demand for Inventions P P 2 P 1 Q 1 Q 2 S 1 D 2 D 1 Q 1. More secure property rights 2. Increased competition 3. National emergencies 4. Others?

21 Policies to Encourage Technological Progress Increase education Subsidize research and development, particularly for basic science Encourage investment Make property rights more secure

22 IV. EMPLOYMENT AND POTENTIAL OUTPUT

23 Decomposition of Potential Output per Person where: Y* is potential output; POP is population; N* is normal employment. is the normal employment-to-population ratio. is normal average labor productivity.

24 Employment-to-Population Ratio in the U.S. Source: Frank, Bernanke, Antonovics, and Heffetz, Principles of Economics.

25 Source: Charles Jones and Dietrich Vollrath, Economic Growth.

26 Employment and Potential Output Increases in will raise. But, the effect is limited: can t vary very much. There are countervailing effects on average labor productivity: An increase in POP for a given lowers because it reduces.

27 V. DETERMINANTS OF THE NORMAL EMPLOYMENT-TO-POPULATION RATIO AND THE NORMAL REAL WAGE

28 The Labor Market w S D N

29 Long-Run Labor Market Diagram Real Wage, w* S w 1 D (MRP L /P) N 1 N*

30 Labor Force Participation Rate for Women in the U.S Percent Source: Bureau of Labor Statistics.

31 Source: Claudia Goldin, Gender Gap, The Concise Encyclopedia of Economics.

32 An Increase in Labor Supply (Women in the U.S.) Real Wage, w* S 1 S 2 w 1 w 2 D (MRP L /P) N 1 N 2 N*

33 Labor Force Participation Rate for Women in the U.S Percent Source: Bureau of Labor Statistics.

34 75 Female Labor Force Participation Rate in the U.S., the U.K., and Japan 70 U.S. 65 U.K. Japan Source: Organisation for Economic Co-operation and Development (OECD).

35 Labor Force Participation Rate High School Graduates, No College, 25 yrs. & over, Men Source: Bureau of Labor Statistics.

36 A Fall in Labor Demand (Less Educated Men) Real Wage, w* S w 1 w 2 D 1 N 2 N 1 N*

37 Real Wages in the U.K. over the Very Long Run From: Clark, The Condition of the Working Class in England,

38 Large Increases in Capital and Improvements in Technology Real Wage, w* w 2 S w 1 D 2 D 1 N 1 N 2 N*

39 VI. THE NATURAL RATE OF UNEMPLOYMENT

40 The U.S. Unemployment Rate, Source: FRED; data from Bureau of Labor Statistics.

41 Unemployment in the U.S., Japan, and France Source: FRED.

42 The Natural Rate of Unemployment The economy s normal or usual unemployment rate.

43 Types and Sources of Unemployment Cyclical unemployment Caused by output being below potential Structural unemployment Caused by job rationing Frictional unemployment Caused by turnover and job search Normal or natural unemployment consists of structural and frictional unemployment.

44 Real Wage, w* w w 1 Job Rationing S D (MRP L /P) N D N 1 N S Structural unemployment N*

45 Minimum wage laws Unions Efficiency wages Sources of Job Rationing