Econ Final Study Guide, Chapter 20

Structural unemployment occurs when_____

above-equilibrium wages result in a surplus of labor

Unions might increase efficiency in the case where they

offset the market power of a large firm in a "company town."

Labor unions

organizations of workers that bargain with employers for higher wages and better working conditions

Labor Force (workforce)

Total number of workers, employed and unemployed

Government Programs

- To facilitate job search -Reduce time for unemployed to find jobs

Labor-Force participation rate

-Percentage of the total adult population that is in the labor force -Fraction of the population that has chosen to participate in the labor market

Frictional Unemployment

AKA Job Search Unemployment Process by which workers find appropriate jobs given their tastes and skills

Efficiency Wages

Above-equilibrium wages paid by firms to increase worker productivity 1) Worker health: Better paid workers, Eat a more nutritious diet, Healthier and more productive 2) Reduces worker turnover: Fewer workers quit their jobs 3) Worker Quality: Attracts a better pool of workers (workers with high reservation wages) 4) Worker Effort: Gives workers an incentive to put forward their best effort

How might the government help reduce frictional unemployment?

By establishing employment agencies and worker training programs to retrain workers laid off in the contracting sectors.

Which of the following government policies would fail to lower the unemployment rate?

D) Raise minimum wage

Why might a firm pay wages in excess of the competitive equilibrium?

To improve worker health, lower worker turnover, improve worker quality , increase worker effort

How does unemployment insurance increase frictional unemployment?

Unemployed workers devote less effort to their job search, turn down unattractive job offers, and are less concerned with job security.

Structural unemployment

Unemployment that arises from a persistent mismatch between the skills or attributes of workers and the requirements of jobs (more people looking for jobs than there are jobs available)

BLS Definition of Persons Employed Part-Time for Economic Reasons

Want and are available for full-time work but have had to settle for a part-time schedule

Which type of efficiency wage is unlikely to be relevant in the United States? Why or why not?

Worker health because in the U.S. workers' wages are significantly above subsistence.

Frictional unemployment occurs when____

Workers take time to search for the right jobs

A minimum-wage law tends to

create more unemployment in low-skill job markets than in high-skill job markets.

Which of the following types of unemployment will exist even if the wage is at the competitive equilibrium?

frictional unemployment

Satchel loses his job and immediately begins looking for another. Other things the same, the unemployment rate

increases and the labor-force participation rate is unaffected.

Unions tend to increase the disparity in pay between insiders and outsiders by

increasing the wage in the unionized sector, which may create an increase in the supply of workers in the nonunionized sector.

If unemployment insurance were so generous that it paid laid-off workers 95 percent of their regular salary,

the official unemployment rate would probably overstate true unemployment.

If, for any reason, the wage is held above the competitive equilibrium wage,

the quantity of labor supplied will exceed the quantity of labor demanded, and there will be unemployment.

Some frictional unemployment is inevitable because

there are changes in the demand for labor among different firms.

Seasonal unemployment

unemployment that is caused by factors such as weather, variations in tourism

What caused the increase in women's labor-force participation

1) Changing political and social attitudes 2) new technologies: Reduced the amount of time required to complete routine household tasks 3) Improved birth control: Reduced the number of children born to the typical family

CPS Category: Employed

1) Full-time and part-time workers 2) Paid employees; self-employed; unpaid workers in a family members business

What are some of the sources of unemployment

1) Job search 2) Minimum Wage 3) Unions 4) efficiency wages

Three reasons for above-equilibrium wages include_____

1) Minimum wage laws 2) Unions 3) Efficiency wages

Results when wages are set above the equilibrium

1) Minimum-wage laws 2) Unions 3) Efficiency wages

What caused the fall in men's labor-force participation

1) More men out of the labor force 2) Full-time students : young men stay in school longer 3) Larger percentage of the adult population consists of retirees: Older men retire earlier and live longer 4) Stay-at-home dads: -More fathers now stay at home to raise their children

Unemployment rate: two facts

1) Never falls to zero 2) Fluctuates around the natural rate of unemployment in the short run

Cyclical Unemployment (types of unemployment)

1) Short fluctuations in the unemployment rate 2) Caused by business cycle fluctuations 3) Cyclical unemployment rises during recessions and falls during expansions 4) Deviations of unemployment for it's natural rate

Full Employment rate of unemployment consists of ________

1) Structural unemployment 2) Frictional unemployment

CPS Category: Unemployed

1) Those who were not employed but have tried to find employment during the previous four weeks (actively seeking and willing to work) 2) Waiting to be recalled to a job or recently laid off

What is the CPS and what are its three categories?

Current Population Survey (CPS) 1) Employed 2) Unemployed 3) Not in the labor force

BLS Definition of Marginally Attached Workers

Currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past

Which of the following individuals is classified as "not in the labor force"? a) Steve worked forty hours last week in a Music Supply store b) Last week, Elizabeth worked 10 hours as a computer programmer at the National Video Company and attended night classes at a local college. She would prefer a full-time job C) Roger lost his job at the R-gone Manufacturing Company. Since then, he has been trying to find a job at other local factories D) Linda is a homemaker. Last week, she was occupied with her normal household chores. She neither held a job nor looked for a job

D) Linda is a homemaker. Last week, she was occupied with her normal household chores. She neither held a job nor looked for a job

Which of the following statements about efficiency wage theory is true? A) Firms do not have a choice about whether they pay efficiency wages or not because these wages are determined by law. B) Paying the lowest possible wage is always the most efficient (profitable). C) Paying above the competitive equilibrium wage tends to cause workers to shirk their responsibilities. D) Paying above the competitive equilibrium wage may improve worker health, lower worker turnover, improve worker quality, and increase worker effort.

D) Paying above the competitive equilibrium wage may improve worker health, lower worker turnover, improve worker quality, and increase worker effort.

Which of the following is an example of a reason why firms might pay efficiency wages? A) At equilibrium wages, workers often quit to find better jobs. B) At equilibrium wages, workers sleep when the boss is not looking because workers are not deeply concerned about being fired. C) At equilibrium wages, only minimally qualified workers apply for the job. D) At equilibrium wages, workers cannot afford a healthy diet so they fall asleep at work due to a lack of energy. E) All of the above are true.

E) all of the above

Fords high-wage policy

Efficiency Wage 1914, $5 a day wage (twice normal)

Which type of unemployment is initiated by the firm

Efficiency Wages

If wages were always at the competitive equilibrium, there would be absolutely no unemployment. T or F

F) There would still be frictional unemployment

A minimum wage is likely to have a greater impact on the market for skilled workers than on the market for unskilled workers. T or F

F) a minimum wage has a greater impact on low-wage workers

An efficiency wage is like a minimum wage in that firms are required by legislation to pay it. T or F

F, efficiency wages are paid voluntarily by firms

Paying efficiency wages tends to increase worker turnover because workers can get continually higher wages if they "job hop." T or F

F, efficiency wages reduce turnover.

Due to the existence of "discouraged workers," the official unemployment rate may overstate true unemployment T or F

F, the official unemployment rate may understate true unemployment.

If the unemployment rate falls, we can be certain that more workers have jobs T or F

F, the unemployment rate falls when unemployed workers leave the labor force

The unemployment rate is about the same for the various demographic groups: men, women, black, white, young, old. T or F

F, unemployment differs across demographic groups.

The presence of unemployment insurance tends to decrease the unemployment rate because recipients of unemployment benefits are not counted in the labor force. T or F

F, unemployment insurance increases the unemployment rate because it increases frictional unemployment.

What is the FSLA and what do they do?

Fair Labor Standards Act (FLSA) President Franklin Roosevelt Made to help low-income workers earn a "fair wage"

Sectoral shifts tend to raise which type of unemployment?

Frictional unemployment

The natural rate includes_____

Frictional unemployment and Structural unemployment

Which type of unemployment will occur even if the wage is at the competitive equilibrium? Why?

Frictional unemployment because job matching takes time even when the wage is at the competitive equilibrium. Also, continuous sectoral shifts and new entrants into the job market make some frictional unemployment inevitable.

Does frictional unemployment differ from the other sources of unemployment?

Frictional unemployment exists even when the wage is at a competitive equilibrium.

Which of the following is not a characteristic of minimum-wage workers? They tend to be

Full Time

Where would a labor union be more likely to increase efficiency rather than reduce it: a small remote town with one large employer or a major city with many employers? Why?

In a small "company" town where a single company has market power that may depress the wage below the competitive equilibrium. This may need to be offset by organized labor.

The Economy is always changing: Workers need to move among_____

Industries

Name two ways that a union increases the disparity in wages between members and nonmembers.

It raises the wage above the competitive equilibrium in the unionized sector. Some of those unemployed in the unionized sector move to the nonunionized sector, increasing the supply of labor and lowering the wage in the nonunion sector.

Frictional unemployment

Job search unemployment

Explain the statement, "Most spells of unemployment are short, and most unemployment observed at any given time is long term."

Many people are unemployed for short periods. A few people are unemployed for very long periods.

Which of the following statements is true? A) minimum wage laws cause an increase in unemployment B) Labor unions bargain for wages that are often below the market wage C) Efficiency wages reduce the amount of unemployment D) All of the above

Minimum wage laws cause an increase in unemployment.

Does the minimum wage cause much unemployment in the market for accountants? Why or why not?

No because the competitive equilibrium wage for accountants exceeds the minimum wage, and hence, the minimum wage is not a binding constraint for accountants.

An accountant with a CPA designation who has been unable to find work for so long that she has stopped looking for work is considered to be

Not in the labor force

CPS Category: Not in the Labor Force

People who don't have paid jobs and are not looking for jobs (Unable, not willing or not available to work)

Unemployment Rate

Percentage of labor force that is unemployed

Which of the following statements is true? A) Prime-age men and women tend to have similar unemployment rates. B) The labor-force participation rate of men is rising. C) Blacks have a lower unemployment rate than whites. D) Most spells of unemployment are long term, but most unemployment observed at any given time is short term. E) All of the above are true.

Prime-age men and women tend to have similar unemployment rates

Collective Bargaining

Process by which unions and firms agree on the terms of unemployment

Unemployment insurance

Reduces the hardship of unemploymentL -Increases frictional unemployment

Name two reasons why the unemployment rate is an imperfect measure of joblessness.

Some people claim to be looking for work just to collect unemployment benefits, or they are being paid "under the table." Others are discouraged workers and have stopped looking for work due to an unsuccessful search.

Consumers decide to buy more computers and fewer typewriters. As a result, computer companies expand production while typewriter companies lay-off workers. This is an example of

Structural unemployment created by sectoral shifts.

A union is a labor cartel. T or F

T

Advocates of unions argue that unions may increase efficiency in some circumstances because they decrease the cost of bargaining between labor and management. T or F

T

Firms may voluntarily pay wages above the level that balances the supply and demand for workers because the higher wage improves the average quality of workers that apply for employment. T or F

T

In post-World War II United States, the labor-force participation rate has been rising for women and has been falling for men T or F

T

The natural rate of unemployment is the amount of unemployment that won't go away on its own, even in the long run T or F

T

The presence of a union tends to raise the wage for insiders and lower the wage for outsiders. T or F

T

Whenever the wage rises above the competitive equilibrium, regardless of the source, the result is additional unemployment. T or F

T

The amount of unemployment that the economy normally experiences is known as

T natural rate of unemployment

Which of the following individuals is most likely to be unemployed for the long term: a buggy whip maker who loses his job when automobiles become popular or a waitress who is laid off when a new cafe opens in town? Why?

The buggy whip maker. He will have to retrain because the contraction of the buggy whip business is permanent, while the waitress may just have to relocate, possibly just down the street.

Dividing the labor force by the working age population yields:

The labor force participation rate.

The Natural Rate of Unemployment

The normal level of unemployment that the economy typically experiences in the long run 1) Unemployment is around 5%

The "normal" underlying level of unemployment in the economy is:

The sum of structural unemployment and frictional unemployment, The full-employment rate of unemployment, The natural rate of unemployment.

Which alternative measure of unemployment attempts to include the impact of discouraged workers in the unemployment statistics? Explain. Is it higher or lower than the official unemployment rate? Explain.

U4. It is total unemployed plus discouraged workers as a percent of the civilian labor force plus discouraged workers. It is a little higher than the official unemployment rate because it includes some nonworking people who have given up looking for work and have fallen out of the labor force.

Efficiency wages, minimum-wage laws, and unions all

keep wages above the equilibrium level, causing a surplus of labor.

BLS Definition of Dicouraged Workers

marginally attached workers who have given a job-market related reason for not currently looking for a job

According to the Bureau of Labor Statistics, a husband who chooses to stay home and take care of the household is

not in the labor force

Which one of the following types of unemployment results from the wage being held above the competitive equilibrium wage?

structural unemployment