Ch 24 Problems & Questions

Explain whether Jorah's death while working long hours in the office increases, decreases, or has no effect on the unemployment rate and the labor-force participation rate.

Jorah went from being an employed adult to no longer being a part of the adult population, so the labor-force participation rate would decrease.

Suppose that Congress passes a law requiring employers to provide employees some benefit (such as healthcare) that raises the cost of an employee by $4 per hour. What effect does this employer mandate have on the demand for labor? (In answering this and the following questions, be quantitive when you can).

This decreases the demand for labor by exactly $4 because firms will not be able to afford hiring new workers.

Explain whether Tyrion, a full-time college student's, graduation and immediate employment increases, decreases, or has no effect on the unemployment rate and the labor-force participation rate.

Tyrion went from not being in the labor force to employed, so this would increase the labor-force participation rate.

is unemployment typically short-term or long-term? Explain.

Unemployment is typically short-term because workers are usually able to apply their skills learned at one job to another job quite easily. However, this is not always the case due to structural unemployment, which can lead to discouraged workers.

How do unions affect the natural rate of unemployment?

Unions affect insiders and outsiders in regards to the natural rate of unemployment. Unions raise the wage above equilibrium, so quantity of labor demanded is less than the quantity of labor supplied, so there is unemployment and insiders keep their jobs. Outsiders, who work non-unionized jobs, will either get another non-unionized job or wait for a unionized job to open up. As a result, the natural rate of unemployment would be higher with unions.

Consider an economy with two labor markets--one for manufacturing workers and one for service workers. Suppose initially that neither is unionized. How would these changes in the manufacturing labor market affect the supply of labor in the market for service workers? What would happen to the equilibrium wage and employment in this labor market?

Wages will be lower but employment will be higher. This is due to the increase and shift rightward in supply of labor for service workers. Less people are able to be hired in the manufacturing labor market, so they will go to the service labor market.

In June 2009, at the trough of the Great Recession, the Bureau of Labor Statistics announced that of all adult Americans, 140,196,000 were employed, 14,729,000 were unemployed, and 80,729,000 were not in the labor force. Use this information to calculate the adult population.

adult population=235,654,000

What claims do advocates of unions make to argue that unions are good for the economy?

advocates of unions claim that unions balance firms' market power and protect workers from being at the mercy of the firm's owners and unions help firms respond efficiently to workers' concerns.

In June 2009, at the trough of the Great Recession, the Bureau of Labor Statistics announced that of all adult Americans, 140,196,000 were employed, 14,729,000 were unemployed, and 80,729,000 were not in the labor force. Use this information to calculate the labor force.

labor force=154,925,000

Using a diagram of the labor market, show the effect of an increase in the minimum wage on the wage paid to workers, the number of workers supplied, the number of workers demanded, and the amount of unemployment.

labor supplied exceeds labor demanded, causing unemployment

In June 2009, at the trough of the Great Recession, the Bureau of Labor Statistics announced that of all adult Americans, 140,196,000 were employed, 14,729,000 were unemployed, and 80,729,000 were not in the labor force. Use this information to calculate the labor-force participation rate.

labor-force participation rate=labor force/adult population*100=65.7%

Is a manufacturing worker who loses his job at a plant in an isolated area more likely to experience short-term or long-term unemployment? Explain.

long-term because he will have to relocate to find a similar job

Is an expert welder with little formal education who loses his job when the company installs automatic welding machinery more likely to experience short-term or long-term unemployment? Explain.

long-term because his industry has been replaced by technology

Is a stagecoach-industry worker who is laid off because of competition from railroads more likely to experience short-term or long-term unemployment? Explain.

long-term because his industry is no longer in demand

Are minimum-wage laws a better explanation for structural unemployment among teenagers or college graduates? Why?

minimum-wage laws are a better explanation for structural unemployment among teenagers because they are younger, less qualified, and less experienced. So, their wages are typically low enough to be affected by minimum-wage laws, whereas college graduates are older, more qualified, and more experienced, which would give them higher wages.

What are the three categories into which the Bureau of Labor Statistics divides everyone? How does the BLS compute the labor force, the unemployment rate, and the labor-force participation rate?

the BLS divides everyone into employed, unemployed, and not in the labor force. The labor force is computed by adding the number of employed and the number of unemployed. The unemployment rate is computed by dividing the number of unemployed by the labor force. The labor-force participation rate is computed by dividing the labor force by the adult population.

Two closely watched statistics by economists are the unemployment rate and the employment-population ratio (percentage of the adult population that is employed). Explain what happens to each of these in the following scenarios. In your opinion, which statistic is the more meaningful gauge of how well the economy is doing? A stock market boom induces newly enriched 60-year-old workers to take early retirement.

unemployment rate decreases and employment-population ratio increases

Two closely watched statistics by economists are the unemployment rate and the employment-population ratio (percentage of the adult population that is employed). Explain what happens to each of these in the following scenarios. In your opinion, which statistic is the more meaningful gauge of how well the economy is doing? After an unsuccessful search, some of the laid-off workers quit looking for a new job.

unemployment rate decreases and employment-population ratio remains constant.

Two closely watched statistics by economists are the unemployment rate and the employment-population ratio (percentage of the adult population that is employed). Explain what happens to each of these in the following scenarios. In your opinion, which statistic is the more meaningful gauge of how well the economy is doing? Numerous students graduate from college but cannot find work.

unemployment rate increases and employment-population ratio remains constant

Explain whether Arya's giving up and retirement after an unsuccessful job search increases, decreases, or has no effect on the unemployment rate and the labor-force participation rate.

Arya went from being employed to no longer in the labor force, so this would decrease the labor-force participation rate.

Explain whether Daenerys quitting her job to become a stay-at-home-mom increases, decreases, or has no effect on the unemployment rate and the labor-force participation rate.

Daenerys went from being employed to no longer in the labor force, so this would decrease the labor-force participation rate.

Structural unemployment is sometimes said to result from a mismatch between the job sills that employers want and the job skills that workers have. To explore this idea, consider an economy with two industries: auto manufacturing and aircraft manufacturing. Suppose that one day the economy opens itself to international trade and, as a result, starts importing autos and exporting aircraft. What would happen to the demand for labor in these two industries?

If the country began importing autos, domestic auto workers would decrease in demand. If the country began exporting aircraft, there would be an increase in demand for labor in the aircraft industries

Explain whether Jaime's 18th birthday and search for a job increases, decreases, or has no effect on the unemployment rate and the labor-force participation rate.

Jaime went from being a child not in the labor force to being an adult that is unemployed, which would increase the unemployment rate and increase the labor-force participation rate.

Explain whether Jon finding a job after a long search increases, decreases, or has no effect on the unemployment rate and the labor-force participation rate.

Jon went from being unemployed to employed, so this would decrease the unemployment rate.

Explain four ways in which a firm might increase its profits by raising the wages it pays.

A firm might increase its profits by raising the wages it pays because worker turnover will decrease, worker's health will increase, worker quality will increase, and worker health will increase, which will therefore increase productivity of the firm in the long run.

Explain whether Cersei's death during retirement increases, decreases, or has no effect on the unemployment rate and the labor-force participation rate.

Cersei went from no longer being in the labor force to no longer being an adult or in the labor force, which would decrease the labor-force participation rate.

Suppose that Congress passes a law requiring employers to provide employees some benefit (such as healthcare) that raises the cost of an employee by $4 per hour. If the wage can freely adjust to balance supply and demand, how does this law affect the wage and the level of employment? Are employers better or worse off? Are employees better or worse off?

Employers and employees are neither better nor worse off since both demand and supply of labor shift by $4, the equilibrium quantity of labor is unchanged and wages decrease by $4.

Why is frictional unemployment inevitable? How might the government reduce the amount of frictional unemployment?

Frictional unemployment is inevitable because the economy is always changing and some firms are always shrinking while others are expanding. The government might reduce the amount of frictional unemployment by paying for programs that will match unemployed workers with job opportunities that match their tastes and skills.

Suppose that Congress passes a law requiring employers to provide employees some benefit (such as healthcare) that raises the cost of an employee by $4 per hour. If employees place a value on this benefit exactly equal to its cost, what effect does this employer mandate have on the supply of labor?

If employees value the benefit by exactly $4 per hour, they would be willing to work the same amount for a wage that is $4 less per hour, so the supply curve of labor shifts to the right by exactly $4.

Suppose that Congress passes a law requiring employers to provide employees some benefit (such as healthcare) that raises the cost of an employee by $4 per hour. Suppose that, before the mandate, the wage in this market was $3 above the minimum wage. In this case, how does the employer mandate affect the wage, the level of employment, and the level of unemployment?

If the minimum wage prevents the wage from falling to the new equilibrium level, the result will be increased unemployment. Initially, the equilibrium quantity of labor is L1 and the equilibrium wage is w1, which is $3 higher than the minimum wage Wm. After the law is passed, demand falls and supply rises. Because of the minimum wage, the quantity of labor demanded will be smaller than the quantity supplied. Thus, there will be unemployment equal to LS2 - LD2.

Structural unemployment is sometimes said to result from a mismatch between the job sills that employers want and the job skills that workers have. To explore this idea, consider an economy with two industries: auto manufacturing and aircraft manufacturing. If for some reason wages fail to adjust to the new equilibrium levels, what would occur?

If the wages did not adjust, there would be a shortage of labor in the aircraft industry and a surplus of labor in the auto industry.

Suppose that Congress passes a law requiring employers to provide employees some benefit (such as healthcare) that raises the cost of an employee by $4 per hour. Now suppose that workers do not value the mandated benefit at all. How does this alternative assumption change you answers to parts (b) and (c)?

If the workers do not value the mandated benefit at all, the supply curve of labor does not shift. As a result, the wage rate will decline by less than $4 and the equilibrium quantity of labor will decline. Employers are worse off because they now pay a greater total wage plus benefits for fewer workers. Employees are worse off, because they get a lower wage and fewer are employed.

Structural unemployment is sometimes said to result from a mismatch between the job sills that employers want and the job skills that workers have. To explore this idea, consider an economy with two industries: auto manufacturing and aircraft manufacturing. Suppose that workers in one industry cannot be quickly retained for the other. How would these shifts in demand affect equilibrium wages both in the short run and in the long run?

In the short run, wages in the auto industry would fall while wages in the aircraft industry would rise. In the long run, new workers would move to the aircraft industry which would bring its wages down until wages in both industries would be equal again.

Explain whether Sansa's 18th birthday and disinterest in working increases, decreases, or has no effect on the unemployment rate and the labor-force participation rate.

Sansa went from being a child not in the labor force to being an adult not in the labor force, increasing the adult population, so the labor-force participation rate would decrease.

Between January 2010 and January 2016, US employment increased by 12.1 million workers, but the number of unemployed workers declined by only 7.3 million. How are these numbers consistent with each other? Why might one expect a reduction in the number of people counted as unemployed to be smaller than the increase in the number of people employed?

The fact that employment increased by 12.1 million workers while unemployment declined by only 7.3 million is consistent with the growth of the labor force by 4.8 million. One might expect a reduction in the number of people counted as unemployed to be smaller than the increase in the number of people employed because the labor force constantly increases as the population grows, and as the labor-force participation rate increases, the increase in employed might exceed the reduction in the number of unemployed.

Structural unemployment is sometimes said to result from a mismatch between the job sills that employers want and the job skills that workers have. To explore this idea, consider an economy with two industries: auto manufacturing and aircraft manufacturing. If workers in these two industries require similar amounts of training, and if workers at the beginning of their careers can choose which industry to train for, what would you expect to happen to the wages in these two industries? How long would this process take? Explain.

Wages would be fairly equal because the two sectors are so similar. If not, workers would choose the industry with higher wages, which would decrease employment in the other industry.

Two closely watched statistics by economists are the unemployment rate and the employment-population ratio (percentage of the adult population that is employed). Explain what happens to each of these in the following scenarios. In your opinion, which statistic is the more meaningful gauge of how well the economy is doing? An auto company goes bankrupt and lays off its workers, who immediately start looking for new jobs.

When an auto company goes bankrupt and lays off its workers who immediately start looking for new jobs, the unemployment rate increases and the employment-population ratio decreases.

Is a construction worker who is laid off because of bad weather more likely to experience short-term or long-term unemployment? Explain.

short-term because bad weather should pass in a fairly short time period

Is a short-order cook who loses his job when a new restaurant opens across the street more likely to experience short-term or long-term unemployment? Explain.

short-term because his skills are applicable to other firms, possible even the new restaurant

Two closely watched statistics by economists are the unemployment rate and the employment-population ratio (percentage of the adult population that is employed). Explain what happens to each of these in the following scenarios. In your opinion, which statistic is the more meaningful gauge of how well the economy is doing? Advances in healthcare prolong the life of many retirees.

unemployment rate is unaffected and employment-population ratio is decreased

In June 2009, at the trough of the Great Recession, the Bureau of Labor Statistics announced that of all adult Americans, 140,196,000 were employed, 14,729,000 were unemployed, and 80,729,000 were not in the labor force. Use this information to calculate the unemployment rate

unemployment rate=unemployed/labor force *100=9.5%

Consider an economy with two labor markets--one for manufacturing workers and one for service workers. Suppose initially that neither is unionized. If manufacturing workers formed a union, what impact would you predict on the wages and employment in manufacturing.

wages will increase and unemployment will increase because they cannot afford to pay more people due to the increased wages