Ch. 15 Unemployment

Unemployment insurance increases frictional unemployment. a. True b. False

a. True

full employment

(another term for natural rate of u) means u rate is at its natural rate and that cyclical = 0

Unemployment rate

the percentage of those who would like to work, don't have a job and have searched for work recently = (unemployed/ ILF )*100 Note: NEVER goes to 0

structural unemployment

unemployment that results because the number of jobs available in some labor markets is insufficient to provide a job for everyone who wants one. -> the number of people seeking for a job > the job available -> labor supplied > labor demanded -> surplus of labor => consequence: Actual wages> equilibrium wages

cyclical unemployment

-the deviation of unemployment from its natural rate = actual unemployment - natural rate - Cause: due to recession and business cycle note: when there is full employment, cyclical u = 0

When a union bargains successfully with employers, in that industry, a. both wages and unemployment increase. b. both wages and unemployment decrease. c. wages increase and unemployment decreases. d. wages decrease and unemployment increases.

a. both wages and unemployment increase.

According to the theory of efficiency wages, a. firms may find it profitable to pay above-equilibrium wages. b. sectoral shifts are the main source of frictional unemployment. c. right-to-work laws reduce the bargaining power of unions. d. an excess supply of labor puts downward pressure on wages.

a. firms may find it profitable to pay above-equilibrium wages.

Which of the following types of unemployment will exist even if the wage is at the competitive equilibrium? a. frictional unemployment b. unemployment due to minimum-wage laws c. unemployment due to efficiency wages d. unemployment due to unions

a. frictional unemployment

In a competitive labor market, an increase in the minimum wage results in a(n) __________ in the quantity of labor supplied and a(n) __________ in the quantity of labor demanded. a. increase, decrease b. decrease, decrease c. increase, increase d. decrease, increase

a. increase, decrease

Cyclical unemployment refers to a. the portion of unemployment created by wages set above the equilibrium level. b. short-run fluctuations around the natural rate of unemployment. c. changes in unemployment due to changes in the natural rate of unemployment. d. the portion of unemployment created by job search.

b. short-run fluctuations around the natural rate of unemployment.

2 reasons why U rate can fall

1. More people find work 2. More people drop out of labor force (the numerator falls by larger proportion then the denom. -> u rate fall when people leave the labor force, or LFPR falls)

The population of Ectenia is 100 people: 40 work full-time, 20 work half-time but would prefer to work full-time, 10 are looking for a job, 10 would like to work but are so discouraged that they have given up looking, 10 are not interested in working because they are full-time students, and 10 are retired. What is the number of unemployed? a. 20 b. 40 c. 10 d. 30 Using the numbers in the preceding question, what is the size of Ectenia's labor force? a. 70 b. 80 c. 60 d. 50

1. c. 10 2. a. 70

causes of sectoral shifts

1. creative destructive: when the introduction of products and tech leads to the end of other industries and jobs 2. international trade, globalization 3. automation, tech advances

Reasons for Structural Unemployment

1. minimum wage laws: if the firms have to pay higher wage. they will hire less -> binding if min wage is lower than Equilibrium wage 2. unionization: 3. efficiency wages

Which one of the following types of unemployment results from the wage being held above the competitive equilibrium wage? a. structural unemployment b. cyclical unemployment c. frictional unemployment d. sectoral unemployment e. None of the above is correct

a. structural unemployment

In the United States, unionized workers are paid about _____ percent more than similar nonunion workers. a. 40 b. 15 c. 5 d. 2

b. 15

Approximately what percent of U.S. workers are directly affected by the minimum wage? a. 12 b. 6 c. 1 d. 25

c. 1

the unemployed

people 1. did not have a job but did make a specific effort to find a job in the last 4 weeks, and available for work 2. were laid off and waiting to be called back

the employed

people 1. do any work for pay or profit 2. did at least 15 hours of unpaid work in a business or farm operated by a family member with whom they live 3. were temporarily absent from their regular jobs bc of illness, vacation, bad weather, labor dispute, etc.

labor force participation rate

the percentage of the adult population that is in the labor force = (ILF/ working age pop )* 100

Types of unemployment

1. Frictional 2. Structural 3. Cyclical Natural rate of unemployment includes frictional and structural unemployment

Kyoko is a 29-year-old professional basketball player. She finished her last season as a player 3 weeks ago and is currently interviewing for a coaching position. Jacques is a 41-year-old autoworker who was laid off from his job 6 months ago. He is frustrated with his inability to find a new full-time position. Last week, he took a part-time job but was given only 3 hours of work.

Unemployed Employed

Unions tend to increase the disparity in pay between insiders and outsiders by a. increasing the wage in the unionized sector, which may create an increase in the supply of workers in the nonunionized sector. b. increasing the wage in the unionized sector, which may create a decrease in the supply of workers in the nonunionized sector. c. decreasing the demand for workers in the unionized sector. d. increasing the demand for workers in the unionized sector.

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

Unions might increase efficiency in the case where they a. offset the market power of a large firm in a "company town." b. lower the wage of local outsiders. c. raise the wage for insiders above the competitive equilibrium. d. threaten a strike but don't actually follow through, so there are no lost hours of work.

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

Efficiency wage

above equilibrium wages paid by firms to increase productivity -> why firms voluntarily pay efficiency wages? 4 reasons 1. worker health 2. less churning: lower workforce turnover 3. high quality worker 4. more worker effort/ better morale

A minimum-wage law tends to a. have no impact on unemployment as long as it is set above the competitive equilibrium wage. b. create more unemployment in low-skill job markets than in high-skill job markets. c. create more unemployment in high-skill job markets than in low-skill job markets. d. help all teenagers because they receive a higher wage than they would otherwise.

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

An increase in the minimum wage above the equilibrium wage a. reduces frictional unemployment, b. increases structural unemployment. c. reduces structural unemployment. d. increases frictional unemployment.

b. increases structural unemployment.

In many European nations, unions a. are social clubs without any economic impact. b. play a much larger role than they do in the United States. c. conspire with firms to keep wages below competitive levels. d. are considered cartels in violation of antitrust laws.

b. play a much larger role than they do in the United States.

Which of the following government policies would fail to lower the unemployment rate? a. reduce unemployment benefits b. raise the minimum wage c. establish right-to-work laws d. establish employment agencies e. establish worker training programs

b. raise the minimum wage

In the 1990s Ireland made unemployment benefits less generous. This change would likely have reduced a. frictional unemployment but not the natural rate of unemployment. b. structural unemployment but not the natural rate of unemployment. c. both frictional unemployment and the natural rate of unemployment. d. both structural unemployment and the natural rate of unemployment

c. both frictional unemployment and the natural rate of unemployment. because natural rate includes both frictional and structural

When a firm pays an efficiency wage, it may a. have trouble attracting enough workers. b. experience declines in worker quality. c. find that its workers quit less frequently. d. have to monitor its workers more closely.

c. find that its workers quit less frequently. -> less churning

Sectoral shifts tend to raise which type of unemployment? a. structural unemployment b. unemployment due to unions c. frictional unemployment d. unemployment due to efficiency wages

c. frictional unemployment

Which of the following is NOT a characteristic of minimum-wage workers? They tend to be a. less educated. b. in the food service and drinking place industry. c. full-time. d. young.

c. full-time.

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 a. employed. b. unemployed. c. not in the labor force. d. not in the adult population.

c. not in the labor force.

If, for any reason, the wage is held above the competitive equilibrium wage, a. unions will likely strike and the wage will fall to equilibrium. b. the quality of workers in the applicant pool will tend to fall. c. the quantity of labor supplied will exceed the quantity of labor demanded and there will be unemployment. d. the quantity of labor demanded will exceed the quantity of labor supplied and there will be a labor shortage.

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

Some frictional unemployment is inevitable because a. efficiency wages may hold the wage above the equilibrium wage. b. of minimum-wage laws. c. there are changes in the demand for labor among different firms. d. of unions. e. of all of the above.

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

Which of the following statements about efficiency wage theory is true? a. Paying above the competitive equilibrium wage tends to cause workers to shirk their responsibilities. b. Firms do not have a choice about whether they pay efficiency wages or not because these wages are determined by law. c. Paying the lowest possible wage is always the most efficient (profitable). 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.

Efficiency wages a. decrease productivity but reduce unemployment. b. increase productivity and reduce unemployment. c. decrease productivity and increase unemployment. d. increase productivity but increase unemployment

d. increase productivity but increase unemployment

According to the Bureau of Labor Statistics, a husband who chooses to stay home and take care of the household is a. employed. b. unemployed. c. a discouraged worker. d. not in the labor force.

d. not in the labor force.

The amount of unemployment that the economy normally experiences is known as a. efficiency wage unemployment. b. cyclical unemployment. c. frictional unemployment. d. the natural rate of unemployment.

d. the natural rate of unemployment.

reasons for frictional unemployment

due to the time required for job search 1. Sectoral shifts: change in demand for labor due to industries contracting, expanding, and relocating 2. churning: workforce turnover workers quitting workers being fired new entrants to labor force people re-entering labor force family relocation

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 are true.

natural rate of unemployment

the normal rate of unemployment around which the actual unemployment fluctuates (Un) = called "Full employment": means actual = normal/ natural rate = this is theoretical variable can't observe directly, estimated by economists Note: includes frictional and structural unemployment

frictional unemployment

unemployment that results because the time it takes workers to search for and fond jobs that best suit their tastes ad skills

unionization

union: worker association that bargain with employers over wages, benefits, and working conditions - have some market power to negotiate higher wage (usually 10-20% higher than non- union workers) - US: 11% of worker are unionized - Europe: more than 50% of workers unionized - Pros (advocates): to counterbalance the market power of the firm - cons (critics): increase structural u and some workers won't have a job