Robert Whaples and the Modern Principles

A blog on my teaching with Modern Principles of Economics by Tyler Cowen and Alex Tabarrok

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Today’s Burning Issue: Unemployment

Posted by Robert Whaples on November 5, 2009

Yesterday, I covered chapter 10 of Cowen and Tabarrok’s macroeconomics split — “Unemployment and Labor Force Participation.”  The chapter has a familiar outline — beginning with official definitions and then moving to an examination of frictional, structural, and cyclical unemployment — just like the textbook I used before switching to C&T.

The outline doesn’t seem very innovative — but the content is.  For years, I’ve framed my discussion of unemployment by asking why rates are typically much lower in the U.S. than in Continental Europe — pulling in material from outside the textbook on long-term unemployment spells, differences in labor market rigidity, minimum wages, union power and unemployment insurance.  I’ve always wished that my textbook would take the same approach — and my wishes have now been fulfilled, as this is the exact approach taken by C&T.  Especially useful is Table 10.1, which gives average unemployment rates in France, Germany, Italy, Spain and the U.S. for five-year intervals from 1980 to 2004 — as well as data on the fraction of the unemployed who have been jobless for more than a year.  Figure 10.4, which plots the percent of workers jobless for more than a year against an index of employment rigidity is even better.

Yet these two are surpassed by Figure 10.6 which deals with cyclical unemployment — plotting the annual change in the U.S. unemployment rate vs. the annual real GDP growth rate.  The annual data points fall fairly neatly around the regression line, which demonstrates that real GDP needs to grow at about 3.4% per year to make the unemployment rate fall.  I discussed why this makes intuitive sense in class by explaining that a) yearly growth in the labor force means unemployment rates will rise unless more people are hired to produce things and b) rising productivity levels mean that fewer workers are needed every year to produce a constant amount of output.  In addition, I drew two new data dot on the figure — for 2008 and (based on projections of what the next couple months will bring) 2009.  The new dots mesh very well with the overall pattern of the figure.

There’s also some good material at the end of the chapter on labor force participation rates — especially trends in lfp rates among women and older workers — but I didn’t have time to cover this in class.

Finally, Tyler and Alex’s link at Marginal Revolution to my Sporcle quiz on Famous Economists shows the power of their blog.  By Tuesday only 50 people had taken the quiz, but yesterday it became the most popular user created quiz of the day and now the quiz has been taken over 4500 times!  See

http://www.sporcle.com/games/DeaconEcon/famous_economists

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