Unit 2- Inflation & Unemployment

• Who is hurt and helped by inflation?
• Hurt by inflation: 
1. Savers
2. Lenders/creditors
3. People on a fixed income (elderly, welfare)
• Helped by inflation:
1. Debtors
• 
• Cost of Living Adjustments (COLA): Automatic wage increase when inflation occurs.
• Ex: New York and California
• Unemployment: The failure to use available resources particularly labor to produce desired goods and services.
• Labor Force: Those that are above 16 years of age and are able and willing to work.
• Labor Force = employed + unemployed
• Not included in the labor force:
1. Military
2. Students
3. Retired
4. Disabled
5. Homeworkers
6. Mental Institutions
7. Jail/Prison
8. Those who are not looking for a job
• Unemployment Rate: 4-5 % = full employment or Natural Rate of Unemployment (NRU)
• Unemployment Rate = (# of unemployed / (# of employed + # of unemployed)) x 100
• Types of Unemployment:
• Frictional: Those who are searching for a job.
• Temporarily unemployed or in between jobs.
• Have transferable skills.
• Ex: high school graduate, college, laid off or left your job.
• Structural: Changes in the structure of the labor force that makes some skills obsolete.
• Do not have transferable skills.
• Have to learn new skills to get a job.
• Seasonal: Due to the time of the year and nature of the job.
• Ex: school bus-drivers, lifeguards, Santa Claus/ Easter Bunny impersonators, and construction workers.
• Cyclical: Results from economic downturns such as recessions/depressions.
• As demand for goods/services fall, demand for labor falls off and workers get laid off.
• Frictional + Structural = NRU
• Full employment means there is no cyclical unemployment.