Students Again

There are 4 basic causes of unemployment (seasonal, structural, frictional, and cyclical):

a) What times of the year should we expect seasonal unemployment to be higher than usual? Why?

Seasonal unemployment might be slightly higher than normal if other conditions other than the economy are not right for seasonal jobs. Take weather for instance. Seasonal summer jobs that absolutely require nice conditions to work might have more unemployed workers if the weather is bad for weeks. These people can not work. If the winter season is a lot longer than expected, spring/summer seasonal workers might have to wait longer to begin work.

b) What times of year should frictional unemployment be higher than usual? Why?

Times of frictional unemployment that would be slightly higher would probably be at the end of the year. Usually companies review their end of the year financial statements and see where their companies are heading. To prepare for a better year, some companies will lay-off people at an opportune time, like the holidays.

c) Name two industries that have experienced structural unemployment. What caused it?

The typewriter/word processor industry and telephone switchboard operators. Both industries pretty much disappeared to technology. Typewriters are no longer needed when computers are now available. Computers can provide software, such as Microsoft Word, to do what the typewriter used to do. The computer also offers a lot more than could a typewriter alone. The phone company no longer needs employees to connect calls for their customers. With technology all phone lines are automated.

d) The auto industry is laying off lots of people right now - is this unemployment seasonal, structural, frictional or cyclical? Is it possibly more than one type?

Lay-offs could be due to either frictional or cyclical. It is frictional unemployment because some of the jobs are being eliminated to  save money for the company. At Visteon Corporation they laid off their entire product warranty group. The warranty groups’ responsibility was now the responsibility of the manufacturing and product engineers. There talent was no longer need. It is cyclical because many people are spending less on cars. This could be due to high gas price and the rising interest rates Michigan is one of the few states that have not come out of an economic slump since early 2000. Many automotive customers are turning to low cost reliable vehicles which are mostly made by foreign manufactures.

e) Why might we get a drop in the official unemployment rate (making the economy look like its improving) during the depths of a  recession even when the economy isn't actually improving?

A drop in unemployment could be caused by more people actively seeking employment. These people would be added to the labor force even though they are not actually employed. If a teenager becomes of age to actively seek a full-time job to help out his family, he would also be added to the labor force. When in a recession, more and more are actively looking for jobs to pay bills.

f) why has the Michigan unemployment rate remained above 7% lately when the rest of the nation has been within the NRU zone  (4-6%) for some time. i.e. why is the Michigan economy still in a recession when the rest of the nation has already recovered?

Many people are spending less on domestic cars. This could be due to high gas price and the rising interest rates. Many automotive customers are turning to low cost reliable vehicles which are mostly made by foreign manufactures. Since most of the labor force in Michigan is invested in the automotive industry, this will cause a harder struggle for Michigan to pull out of the economic slump. Many of the auto workers choose to work instead of going to school for higher education. After the lay-offs happen, these workers are not skilled in another field or have the education to easily obtain work outside of the automotive industry.

GDP:

a) What are some of the shortcomings of GDP as a measure of economic health?

Some shortcomings are: Non-market activities, Leisure, Improved product quality, Underground economy, the Environment.

b) Which shortcomings understate true national production?

Non-market activities, such as services of homemakers understate true national output. Things that people do for themselves are not included. Someone who remodels their own kitchen and repair their own plumbing issues do not show up in the GDP. Underground economy, leisure, and improved product quality also understates GDP.

c) Which shortcomings overstate true national production?

The cost environmental issues overstate the national production. Money spent to clean up pollution and negative by-products of outputs is added to the GDP which causes it to be overstated.

d) If we know that black market production should be included in GDP, but it isn't - why don't we include it?

Most of these activities are illegal and hard to track. Even if it were to be included, on one would report any of these statistics when they call for a survey. It would still be unreliable information if collected even if it was reported in the GDP.