Alternative Measures, analyze the labor market before, during, and after the financial crisis

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Zvabhpur2017

Economics

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For this box you will analyze the labor market before, during, and after the financial crisis.

You will analyze the 2006-2016 period; these are the years that have the same unemployment rates at both end-points (4.7% in both January 2006 and December 2016).

- Go to www.BLS.gov (Links to an external site.)Links to an external site. and look for 1) the Unemployment Rate; 2) Labor Force Participation Rate; and 3) hours of work (search: total private average weekly hours of all employees).

The purpose of this box is to document and explain these three indicators during the Great Recession.

The participation rate and hours correspond to the extensive and intensive margins, respectively. The “extensive margin” refers to whether to work or not, and the “intensive margin” refers to how many hours ---once one has decided to work.

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ECON 562 Macroeconomic Analysis & Public Policy Module 4: Households Labor-Leisure Decision Copyright 2017 Montclair State University Introduction A One-Period Model of a Household Optimal Allocation of Time The Labor Supply Taxes on Labor Introduction Every day we have to decide how to allocate our time between labor and leisure. How can we model this economic decision? ECON 562 Macroeconomic Analysis & Public Policy Module 4a: A One-Period Model A One-Period Model In this module, we develop a theory of households who live for just one day. So we model how a "representative" household chooses: • How much to work and • How long to stay home The model’s predictions are consistent with the data. A One-Period Model In this one-period model what you earn, you consume, but you also like to rest and/or socialize. So let’s suppose that household utility for consumption 𝐶 and leisure 𝑁 is given by: 𝜽𝒍𝒏𝑪 + 𝟏 − 𝜽 𝒍𝒏𝑵 And there is a time constraint 𝑵 + 𝑳 = 𝟏𝟔, and a budget constraint 𝑪 = 𝒘𝑳. There are 16 hours in a day that can be either spent working (𝐿) or spent on leisure (𝑁). Optimal Allocation of Time Solving for 𝐿 in the time constraint and substituting 𝐿 and 𝐶 in the utility function we get: 𝜽𝒍𝒏 𝒘 + 𝜽𝒍𝒏 𝑳 + 𝟏 − 𝜽 𝟏𝟔 − 𝑳 To find the optimal choice of L, we take the derivative of this function with respect to L and set it equal to 0, 𝜽 𝟏−𝜽 − =𝟎 𝑳 𝟏𝟔 − 𝑳 This yields 𝑳 = 𝜽𝟏𝟔. Hours of work are proportional to the weight on consumption (and independent of 𝑤!) The Labor Supply So, how could it be that the wage rate does not affect the decision on hours? Wages matter, of course, but there are two opposing forces that make them ‘disappear’ from the solution of the problem: • If wages go up, your time endowment is worth more, and as you are richer you want more 𝐶 and 𝐿, that is, to work less (income effect). • But, if wages go up, the (opportunity) cost of ‘staying home’ rises, and you want less leisure and work more (substitution effect). Taxes on Labor The solution is consistent with the data! Hours worked per-capita are trendless over long-periods of time, even though wages have been increasing over time with productivity. This finding has fiscal implications. Unlike the tax on capital, which reduces the capital stock, taxes on wages don’t appear to be distortionary (based on this model specification).
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Explanation & Answer

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Labour Force Participation Rate
06,Jan
06,Feb
06,March
06,April
06,May
06,June
06,July
06,Aug
06,Sept
06,Oct
06,Nov
06,Dec
07,Jan
07,Feb
07,Mar
07,April
07,May
07,June
07,July
07,Aug
07,Sept
07,Oct
07,Nov
07,Dec
08,Jan
08,Feb
08,March
08,April
08,May
08,June
08,July
08,Aug
08,Sept
08,Oct
08,Nov
08,Dec
09,Jan
09,Feb
09,March
09,April
09,May
09,June
09,July
09,Aug
09,Sept
09,Oct

66.0
66.1
66.2
66.1
66.1
66.2
66.1
66.2
66.1
66.2
66.3
66.4
66.4
66.3
66.2
65.9
66.0
66.0
66.0
65.8
66.0
65.8
66.0
66.0
66.2
66.0
66.1
65.9
66.1
66.1
66.1
66.1
66.0
66.0
65.9
65.8
65.7
65.8
65.6
65.7
65.7
65.7
65.5
65.4
65.1
65.0

Unemployment Rate

Hours of Work
4.7
4.8
4.7
4.7
4.6
4.6
4.7
4.7
4.5
4.4
4.5
4.4
4.6
4.5
4.4
4.5
4.4
4.6
4.7
4.6
4.7
4.7
4.7
5.0
5.0
4.9
5.1
5.0
5.4
5.6
5.8
6.1
6.1
6.5
6.8
7.3
7.8
8.3
8.7
9.0
9.4
9.5
9.5
9.6
9.8
10.0

34.2
34.4
34.3
34.4
34.4
34.3
34.4
34.3
34.4
34.5
34.3
34.3
34.4
34.4
34.4
34.5
34.4
34.4
34.4
34.3
34.4
34.4
34.4
34.4
34.4
34.3
34.4
34.4
34.3
34.3
34.2
34.2
34.1
33.9
34.0
34.1
33.8
33.8
33.8
33.7
33.8
33.8
33.9
33.8

09,Nov
09,Dec
10,Jan
10,Feb
10,March
10,April
10,May
10,June
10,July
10,Aug
10,Sept
10,Oct
10,Nov
10,Dec
11,Jan
11,Feb
11,March
11,April
11,May
11,June
11,July
11,Aug
11,Sept
11,Oct
11,Nov
11,Dec
12,Jan
12,Feb
12,March
12,April
12,May
12,June
12,July
12,Aug
12,Sept
12,Oct
12,Nov
12,Dec
13,Jan
13,Feb
13,March
13,April
13,May
13,June
13,July
13,Aug
13,Sept

65.0
64.6
64.8
64.9
64.9
65.2
64.9
64.6
64.6
64.7
64.6
64.4
64.6
64.3
64.2
64.1
64.2
64.2
64.1
64.0
64.0
64.1
64.2
64.1
64.1
64.0
63.7
63.8
63.8
63.7
63.7
63.8
63.7
63.5
63.6
63.8
63.6
63.7
63.6
63.4
63.3
63.4
63.4
63.4
63.3
63.3
63.3

9.9
9.9
9.8
9.8
9.9
9.9
9.6
9.4
9.4
9.5
9.5
9.4
9.8
9.3
9.1
9.0
9.0
9.1
9.0
9.1
9.0
9.0
9.0
8.8
8.6
8.5
8.3
8.3
8.2
8.2
8.2
8.2
8.2
8.1
7.8
7.8
7.7
7.9
8.0
7.7
7.5
7.6
7.5
7.5
7.3
7.3
7.2

33.9
33.9
34.0
33.8
34.0
34.1
34.1
34.1
34.2
34.2
34.3
34.3
34.2
34.3
34.2
34.3
34.3
34.4
34.4
34.3
34.4
34.3
34.4
34.4
34.4
34.4
34.5
34.5
34.5
34.5
34.3
34.4
34.4
34.4
34.4
34.4
34.4
34.5
34.4
34.5
34.5
34.4
34.4
34.5
34.4
34.5
34.4

13,Oct
13,Nov
13,Dec
14,Jan
14,Feb
14,March
14,April
14,May
14,June
14,July
14,Aug
14,Sept
14,Oct
14,Nov
14,Dec
15,Jan
15,Feb
15,March
15,April
15,May
15,June
15,July
15,Aug
15,Sept
15,Oct
15,Nov
15,Dec
16,Jan
16,Feb
16,March
16,April
16,May
16,June
16,July
16,Aug
16,Sept
16,Oct
16,Nov
16,Dec

62.8
63.0
62.9
62.9
62.9
63.1
62.8
62.8
62.8
62.9
62.9
62.8
62.9
62.9
62.7
62.9
62.7
62.7
62.8
62.9
62.6
62.6
62.6
62.4
62.5
62.5
62.7
62.7
62.9
63.0
62.8
62.6
62.7
62.8
62.8
62.9
62.8
62.6
62.7

7.2
6.9
6.7
6.6
6.7
6.7
6.2
6.3
6.1
6.2
6.2
5.9
5.7
5.8
5.6
5.7
5.5
5.4
5.4
5.5
5.3
5.2
5.1
5.0
5.0
5.0
5.0
4.9
4.9
5.0
5.0
4.7
4.9
4.9
4.9
4.9
4.8
4.6
4.7

34.4
34.5
34.3
34.4
34.3
34.6
34.5
34.5
34.5
34.5
34.5
34.5
34.5
34.6
34.6
34.5
34.6
34.5
34.5
34.5
34.5
34.5
34.6
34.5
34.5
34.5
34.5
34.6
34.5
34.4
34.4
34.4
34.4
34.4
34.3
34.4
34.4
34.3
34.4

Data Retrieved from:
Labour Force Participation Rate:
Unemployment Rate:
Hours of Work:

https://data.bls.gov/pdq/SurveyOutputServlet
https://data.bls.gov/pdq/SurveyOutputServlet
https://data.bls.gov/pdq/SurveyOutputServlet

Labour Force Participation Rate
06,Jan
06,Feb
06,March
06,April
06,May
06,June
06,July
06,Aug
06,Sept
06,Oct
06,Nov
06,Dec
07,Jan
07,Feb
07,Mar
07,April
07,May
07,June
07,July
07,Aug
07,Sept
07,Oct
07,Nov
07,Dec
08,Jan
08,Feb
08,March
08,April
08,May
08,June
08,July
08,Aug
08,Sept
08,Oct
08,Nov
08,Dec
0...


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