HOLY ANGEL UNIVERSITY

SCHOOL OF BUSINESS AND ACCOUNTANCY

BASIC MACROECONOMICS
MIDTERM

6343-BMACROECON
B-221

MIDTERM ASSIGNMENT 1: Unemployment Podcast

“Planet Money #917 - Quit Threat”

Badoy, Laurice Rose Isabel A.

PROFESSOR
Dr. Danzen Olazo

DATE OF SUBMISSION
02/02/2023

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I. INSTRUCTIONS

In this assignment you will listen to an episode of Planet Money about the state of
Unemployment in the United States and the resulting saliency of the "Quit Threat".

In the unemployment module, you learned about the unemployment rate, how it is
calculated, and the current phenomenon of historically low unemployment. This podcast
discusses how that low unemployment rate translates (or should translate) into more power
for workers and higher wages.

1. Listen to Planet Money #917 and complete the following questions:

At the time the podcast was recorded, what was the unemployment rate in the United
States?

2. What is the term for the "lowest level of unemployment you can get to without
sparking accelerating inflation?"

3. What is a two-tiered wage structure?

4. What was the good and bad news regarding the Hispanic labor market statistics?

5. At the time of the podcast, what city had the lowest unemployment rate in the
country

6. How would you apply this podcast in the Philippines?

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II. ANSWERS

The podcast entitled "Full Employment: How Tight Labor Markets Benefit Workers,"
delves into the complexities of the job market, particularly in the context of low
unemployment rates.

The following answers the given questions above upon dissecting and analyzing specific
details from the podcast to provide a comprehensive understanding of the labor market
dynamics presented:

Unemployment Rate in the United States at the Time of the Podcast

On May 31, 2019, the United States' unemployment rate stood at 3.6%, as mentioned
by Kenny Malone (Host). This remarkably low figure, as highlighted in the podcast,
marked the lowest unemployment rate in almost 50 years.

Term for “Lowest Level of Unemployment without Sparking Inflation”

The term for the "lowest level of unemployment you can get to without sparking
accelerating inflation" is referred to as "full employment." This concept, elucidated by
Professor Heidi Shierholz in the podcast, indicates the point where unemployment is
minimized without triggering inflation due to excessive wage demands. Specifically, if the
unemployment rate is extremely low, employers must increase wages beyond what they
can comfortably manage to attract and retain the necessary workforce. Consequently, they
find themselves compelled to escalate prices continuously to offset these rising costs.

Shierholz also introduces the idea of the "quit threat" – a term coined by economists to
describe the increased bargaining power workers have when unemployment is low.
Shierholz explains that as unemployment drops, employees with viable alternatives can

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leverage the threat of quitting to negotiate higher wages. This shift in power dynamics
becomes more pronounced as unemployment approaches full employment levels.

Two-Tiered Wage Structure Definition

Scott Horsley explained that certain companies adopt a two-tiered wage structure as
a compensation strategy in times of economic downturn or challenges. This approach
entails keeping the wages of current employees unchanged while introducing lower pay
scales for newly hired personnel. The primary goal is to alleviate financial pressures on
companies while safeguarding the salaries of existing employees. Horsley explicitly
highlights its widespread use in various industrial companies during the Great
Recession.

Horsley’s session mentions the story of Courtney Hering, an employee at the Kohler
factory in Sheboygan, Wisconsin, like many others during the Great Recession, adopted
a two-tiered wage structure, leaving existing workers' salaries untouched while reducing
pay for new hires. However, as unemployment decreased and the labor market
tightened, workers gained the upper hand in negotiations. Her experience reflects the
impact of a tightening labor market on workers' ability to demand better compensation.
The two-tier wage gap at Kohler was gradually closed through negotiations in 2015 and
2018, resulting in significant pay increases for newer workers like her. This shift not
only improved financial outcomes but also contributed to a more positive work
environment and increased job satisfaction among employees.

Good and Bad News Regarding Hispanic Labor Market

The discussion on NPR's full employment series sheds light on the nuanced dynamics
of the Hispanic labor market, providing both positive and negative insights. Jasmine
Garsd, a colleague of the host Kenny Malone, contributes valuable perspectives on the
unemployment situation within the Hispanic community.

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 Initially, Garsd highlights the positive aspect by revealing that the unemployment rate
for Hispanics stands at 4.2%, which is considered a historic low. This statistic aligns closely
with the national average, indicating a positive trend towards increased employment
opportunities within the Hispanic demographic. However, she quickly transitions to
addressing the underlying complexities beyond the surface-level statistics. Despite the low
unemployment rate, she underscores the persisting issue of relatively low wages for
Hispanic and Latino workers. Specifically, she notes that their weekly median earnings are
only about 75% of those for white workers. This wage disparity remains unchanged despite
the tightening labor market, indicating deep-rooted structural challenges.

Garsd delves into the factors contributing to these disparities, citing educational
attainment and language barriers as significant determinants. She explains that Hispanic
labor tends to be concentrated in low-wage jobs, partly due to educational disparities.
While there has been exponential growth in educational attainment among Hispanics, a lag
persists, hindering their access to higher-paying opportunities. She then highlights the
challenges faced by immigrant communities, particularly those with irregular or
undocumented status. These individuals often encounter difficulties advocating for wage
increases due to their precarious legal status, exacerbating their vulnerability in the labor
market.

The discussion extends beyond the Hispanic community to highlight similar issues
faced by African American workers. Despite a historically low unemployment rate of
6.7%, the African American unemployment rate remains disproportionately high compared
to their white counterparts. This disparity persists, unaffected by the tightening labor
market, indicating systemic challenges that transcend economic fluctuations.

City with the Lowest Unemployment Rate

In the podcast, the host and correspondent Jim Zarroli discuss the unprecedentedly low
unemployment rate in the United States, standing at 3.6%. However, there is one city,
Ames, Iowa, where the unemployment rate is an astonishing 1.5%. This exceptional

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situation prompts a deeper exploration of what such a low unemployment rate looks like
on the ground.

Jim Zarroli, a correspondent on the business desk, shares his firsthand experience of
visiting Ames to witness the effects of this remarkably low unemployment rate. Ames, a
small city of around 60,000 people located 40 minutes north of Des Moines, boasts a
picturesque blend of new and old architecture, including a charming downtown area. The
signs of a 1.5% unemployment rate are conspicuous throughout Ames, with numerous
establishments displaying "help wanted" signs in their windows. Jim mentions
encountering these signs in various places such as restaurants, bowling alleys, and bars.
The demand for workers is evidently high, creating a pervasive atmosphere of recruitment.

Ames's status as a city with a research university, Iowa State, has contributed to its
resilience in recovering from the Great Recession. The city is generating jobs, particularly
in lucrative sectors such as technology and healthcare. However, the other side of the coin
is that Ames struggles to attract a sufficient population to fill these job openings, given
Iowa's relatively stagnant population growth. This combination of job growth and a limited
influx of people creates a worker shortage, affecting not only high-paying fields like
technology but also the service industry. Even at restaurants, the shortage of workers is
palpable, as evidenced by ubiquitous "help wanted" signs.

Zarroli provides a poignant example from Hickory Park, a longstanding restaurant in

Ames. The manager, Elizabeth Kopecky, mentions that they had never hung a help-wanted
sign until the last two years. The scarcity of workers has reached a point where neighboring
restaurants have contacted them seeking additional staff, highlighting the severity of the
situation. The scarcity of labor is also evident in the service industry, where managers find
themselves multitasking across various roles. A restaurant worker, Tanisha Cortez, shares
her experience of being offered jobs from every place she applied, emphasizing the
advantageous position of job seekers in a city with 1.5% unemployment.

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Application in the Philippines

In the context of the Hispanic labor market and wage disparities, the Philippines can
draw lessons on addressing education gaps and language barriers to promote inclusivity
and equitable economic growth. Additionally, the city of Ames serves as a case study,
emphasizing the importance of creating high-paying jobs while addressing population-
related challenges. Hence, the necessity for continuous and critical planning in the Nation
Building Program of the government. As for the Philippines, the insights gleaned from the
NPR podcast on full employment, particularly regarding the intricacies of the labor market
and the dynamics of unemployment, offer valuable lessons for policymakers and
stakeholders involved in nation-building. By examining key elements discussed in the
podcast, such as the unemployment rate, wage structures, and disparities within specific
labor demographics, the Philippines can draw parallels and apply critical improvements to
its government programs and policies.

Firstly, the significance of continuous research and data analysis in understanding and
addressing unemployment issues. Just as the United States closely monitors its
unemployment rate, the Philippines must invest in robust data collection and analysis
mechanisms to accurately gauge the state of its labor market. By tracking unemployment
trends over time, policymakers can identify emerging challenges and opportunities,
enabling them to tailor interventions effectively.

The concept of "full employment," elucidated in the podcast, offers a valuable

framework for evaluating the Philippine government's efforts in fostering inclusive
economic growth. Full employment represents the optimal balance between job availability
and inflationary pressures, signaling a healthy labor market. As the Philippines strives to
achieve sustainable development and alleviate poverty, policymakers must prioritize
strategies that promote full employment while safeguarding against inflationary risks. This
necessitates a nuanced approach that addresses structural barriers to employment, enhances
workforce skills, and fosters a conducive business environment.

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 The discussion on two-tiered wage structures provides insights into labor market
dynamics during economic downturns, offering lessons for the Philippines amidst global
uncertainties. While such wage structures may serve as temporary cost-cutting measures
for companies, they can exacerbate wage inequalities and hinder social mobility. Whilst
the Philippines grapples with economic challenges, policymakers must balance short-term
imperatives with long-term equity considerations, ensuring that wage policies promote
fairness and dignity for all workers.

Furthermore, the examination of disparities within specific labor demographics, such

as the Hispanic and African American communities in the United States, underscores the
importance of addressing systemic barriers to employment. Similar to the Philippines,
where issues of social inequality and discrimination persist, targeted interventions are
needed to promote inclusive growth and ensure equitable access to employment
opportunities. This requires comprehensive strategies that address educational disparities,
language barriers, and discriminatory practices, empowering marginalized groups to
participate fully in the labor market.

Lastly, the case study of Ames, Iowa, offers valuable insights into the dynamics of a
tight labor market and its implications for economic development. While Ames benefits
from job growth in lucrative sectors, it faces challenges in attracting and retaining a skilled
workforce. The Philippines' pursuit of economic diversification and industrialization
necessitates strategies to cultivate a skilled labor force and create attractive employment
opportunities outside major urban centers. By investing in education and skills
development initiatives, enhancing infrastructure, and promoting entrepreneurship in
regional areas, the Philippines can stimulate job creation and reduce disparities in economic
opportunities across regions.

The NPR podcast on full employment provides a rich tapestry of insights and lessons
that are highly relevant to the Philippines' efforts in nation-building. By leveraging these
insights and applying critical improvements to its government programs and policies, the

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Philippines can navigate the complexities of the labor market, foster inclusive economic
growth, and advance the well-being of its citizens.

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