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How is full employment determined in a classical world?

Let us address employment from a personal standpoint. If you were the owner of a small business (15 employees) and business was slow, what would you do? Would you cut everyone's wages, or lay people off? As an employee, how would you react if your employer reduced your wages?

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Chika Ilonah
Chika IlonahLv10
29 Sep 2019

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Related questions

By this point in the semester, you have a pretty good idea of what drives a company's net income. You've also read about ethics in business and what kinds of conditions are typically present in fraud situations (opportunity, justification, and pressure).

In your introductions, several of you indicated career goals around business ownership. Well, let's say that you own a small restaurant. The restaurant business is very competitive because diners have a variety of choices. Therefore, you must be very careful to manage costs without sacrificing quality in order to generate a profit. Recently, one of your key food suppliers announced a large price increase across the board. You are reluctant to switch suppliers because you feel the quality of your meals would suffer. You are also reluctant to increase your menu prices because you feel that might result in decreased business. However, one area where you could cut costs is associated with your kitchen staff. You could hire kitchen employees who are not legally authorized to work in the U.S. Because these potential employees have not followed the appropriate legal process, they are willing to work for lower wages. You also know that these employees would feel fortunate to have a job and would be very hard workers who didn't mind long hours. You know that some of your competitors have already hired employees illegally, but nothing has happened as a result. If you were to do likewise, you could cut your expenses significantly while holding your menu prices constant. Your customers would be able to enjoy the same quality meals at reasonable prices.

This restaurant provides the only source of income for you and your family. It's been in your family for over 50 years. Your parents started the restaurant and you took it over 15 years ago when your dad's health started to decline. The profits from the restaurant not only provide an income for you and your family but they also provide retirement income for your parents. Your dad's health has caused him to be in and out of the hospital several times over the past few years and insurance has not always paid for all the related expenses. Therefore, it's important to both your family and your parents that the restaurant continues to do well.

Would you decide to hire employees who were not legally authorized to work in the U.S.? If your decision was challenged by the local news team, what would you say in your defense? How did the knowledge that you've gained in the course so far play into your decision? Do you think this might be a real situation that you might encounter or it might be similar to a real situation that you might encounter?

In order to earn the maximum points, you must address all the questions posed here (2 points per question), using proper grammar. You will lose a half point for each grammar error.

Ch 7

2) Suppose that the U.S. noninstitutional adult population is 230 million and the labor force participation rate is 67 percent.

a. What would be the size of the U.S. labor force?

b. If 85 million adults are not working, what is the unemployment rate?

3) Determine whether each of the following would be considered frictional, structural, seasonal, or cyclical unemployment:

a. A UPS employee who was hired for the Christmas season is laid off after Christmas

b. A worker is laid off due to reduced aggregate demand in the economy.

c. A worker in a DVD rental store becomes unemployed as video-on-demand cable service becomes more popular.

d. A new college graduate is looking for employment.

5) When the economy is at full employment, is the unemployment rate at zero percent? Why or why not? How would a more generous unemployment insurance system affect the full employment figure?

7) Here are some recent data on the U.S. consumer price index:

YEAR CPI YEAR CPI YEAR CPI

1992 140.3 1999 166.6 2006 201.6

1993 144.5 2000 172.2 2007 207.3

1994 148.2 2001 177.1 2008 215.3

1995 152.4 2002 179.9 2009 214.5

1996 156.9 2003 184.0 2010 218.1

1997 160.5 2004 188.9 2011 224.9

1998 163.0 2005 195.3 2012 229.6

Compute the inflation rate for each year 1993 – 2012 and determine which were years of inflation. In which years did deflation occur? In which years did disinflation occur? Was there hyperinflation in any year?

Ch 8

1) How do we measure labor productivity? How do changes in labor productivity affect the U.S. standard of living?

5) Supposed that two nation start out in 2013 with identical levels of output per work hour – say, $100 per hour. In the first nation, labor productivity grows by 1 percent per year. In the second, it grows by 2 percent per year. Use a calculate or spreadsheet to determine how much output per hour each nation will be producing 20 years later, assuming that labor productivity growth rates do not change. The, determine how much each will be producing per hour 100 years later. What do your results tell you about the effect of small differences in productivity growth rates?

7) What are some examples, other than those given in the chapter of technological change that has caused unemployment? And what are some examples of new technologies that have created jobs? How do you think you might measure the net impact of technological change on overall employment and GDP in the United States?

Ch 7

2) Suppose that the U.S. noninstitutional adult population is 230 million and the labor force participation rate is 67 percent.

a. What would be the size of the U.S. labor force?

b. If 85 million adults are not working, what is the unemployment rate?

3) Determine whether each of the following would be considered frictional, structural, seasonal, or cyclical unemployment:

a. A UPS employee who was hired for the Christmas season is laid off after Christmas

b. A worker is laid off due to reduced aggregate demand in the economy.

c. A worker in a DVD rental store becomes unemployed as video-on-demand cable service becomes more popular.

d. A new college graduate is looking for employment.

5) When the economy is at full employment, is the unemployment rate at zero percent? Why or why not? How would a more generous unemployment insurance system affect the full employment figure?

7) Here are some recent data on the U.S. consumer price index:

YEAR CPI YEAR CPI YEAR CPI

1992 140.3 1999 166.6 2006 201.6

1993 144.5 2000 172.2 2007 207.3

1994 148.2 2001 177.1 2008 215.3

1995 152.4 2002 179.9 2009 214.5

1996 156.9 2003 184.0 2010 218.1

1997 160.5 2004 188.9 2011 224.9

1998 163.0 2005 195.3 2012 229.6

Compute the inflation rate for each year 1993 – 2012 and determine which were years of inflation. In which years did deflation occur? In which years did disinflation occur? Was there hyperinflation in any year?

Ch 8

1) How do we measure labor productivity? How do changes in labor productivity affect the U.S. standard of living?

5) Supposed that two nation start out in 2013 with identical levels of output per work hour – say, $100 per hour. In the first nation, labor productivity grows by 1 percent per year. In the second, it grows by 2 percent per year. Use a calculate or spreadsheet to determine how much output per hour each nation will be producing 20 years later, assuming that labor productivity growth rates do not change. The, determine how much each will be producing per hour 100 years later. What do your results tell you about the effect of small differences in productivity growth rates?

7) What are some examples, other than those given in the chapter of technological change that has caused unemployment? And what are some examples of new technologies that have created jobs? How do you think you might measure the net impact of technological change on overall employment and GDP in the United States?

Silicon Valley in California and Route 128 in Massachusetts are the preeminent high-tech clusters in the world. Silicon Valley dates back to the early 1930s when Stanford University encourages its electrical engineering graduates to stay in the area and start companies.

In the early 1950s, Stanford created the Stanford Industrial Park, leasing University land to high-tech companies that worked closely with its engineering school. In the mid-1950s, defense contractors such as Lockheed brought dollars to the area. By the late 1960s, a critical mass of such talent had accumulated. For example, in 1968, eight young engineers left their employer over a disagreement; over the next 20 years, they founded 65 new companies, including Intel Corporation, which later created the microprocessor chip, the brain of personal computers.

This pattern repeated: one researcher estimated that in small and medium-sized firms, 35% of the workforce would, on average, turn over in a year. Silicon Valley became a fertile location for start-ups, with dozens sprouting every year -- everything from firms specializing in hardware and software to network firms like eBay, Facebook, and Google. It also became home to investors who specialize in financing new high-tech companies. Silicon Valley's compact geographical location allowed people to form close social and research bonds eve while working for rival firms.

On the other side of the country, a high-tech cluster known as Route 128 lies on a 65-mile highway surrounding Boston and Cambridge. It owes its beginnings to the Massachusetts Institute of Technology (MIT), the top engineering university in the world, as well as funding from the U.S. military, NASA, and the National Science Foundation. In the 1950s Route 128 dominated Silicon Valley, with three times the employment.

But early on Route 128 differed from Silicon Valley in significant ways. Geographically, Route 128 was more spread out than Silicon Valley. Its forms were larger; reflecting the needs of defense contractors during the Cold War. And MIT extended little help to Route 128 firms.

Another major difference between the two clusters lay in how firms were organized. Route 128 firms tended to be "vertically integrated", combining the entire chain of production from research to design to production in the same firm. Silicon Valley firms focused exclusively on research and design, contracting production out to specialized firms that achieved economies of scale. In contrast to the fluidity of employees and ideas across companies in Silicon Valley, Route 128 firms emphasized a commitment to lifetime employment and closely guarded their innovations to remain competitive.

The 1970s and 1980s were harsh for Route 128. Military spending dried up, and it lost its edge in microcomputers when Apollo Computers lost its preeminence to an aggressive Silicon valley from, Sun Microsystems. By 1980, electronics employment in Silicon valley was three times that of Route 128. Over time, Route 128 ceded the advantage to Silicon Valley in electronics and networking. Today its niche is in biotechnology, genetics, materials engineering, and finance.

1. What positive externalities were common to both Silicon Valley and Route 128? What positive externalities were not common to both? Explain.

2. What factors made Silicon Valley such a fertile place for start-ups? How did these factors interact with one another? What inhibited start-ups in Route 128?

3. In hindsight, what could Apollo Computers have done to maintain its advantage in mini-computers? What does this tell you generally about research clusters?

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