Chapter 7 Unemployment

According to the theory of efficiency wages increase workers productivity by

attracting higher-quality job applicants increasing worker effort Reducing turnover, which is costly to firms Improving health of workers

Government policies directed at reducing frictional unemployment include

making unemployment insurance 100 percent experience rated

Between 1970 and 2018, many Europeans _____ the number of hours they work, while the typical work hours of U.S. workers _____.

substantially reduced; stayed about the same

According to the text, the real wage does not fall even when there is unemployment for all of these reasons EXCEPT:

that employers often are concerned about the well-being of their workers.

Suppose that over the course of a year 100 people are unemployed for four weeks each (Short-term employed) 10 people are unemployed were attributable to the short-term unemployed

43.5

According to the Bureau of Labor Statistics, during non-recessions periods, the average duration of unemployment is between _____ weeks.

5 and 10

Which of these characteristics made the 2008 - 2009 recession differ MOST sharply from previous recessions

A Large spike in the duration of unemployment

reasons for Frictional unemployment

workers have different abilities and preferences. different skill req. geographics. imperfect candidates

The main goal of the unemployment-insurance system is to reduce

workers uncertainty about their incomes.

One explanation for the differing number of hours worked in the United States and western Europe is the

Higher level of taxes in Europe

Which of these hypothesis is consistent with fewer hours worked per year in Europe than in the United States?

Higher tax rates in Europe than in the United States

According to Olivier Blanchard, Europeans are more likely to use in real wages resulting from technological progress to increase ________,and Americans are more likly to use these increases in real wages to increase _____________.

Hours of leisure; consumption of goods and services

One efficiency-wage theory implies that firms pay high wages because

In more a firm pays its workers the greater their incentive to stay with the firm

How do you claim for an Unemployment insurance & what does it do?

Individual States have their own programs. States gives a percentage of your previous wage. The state sets a cap on total weekly benefits. The standard is 26.

The unemployment insurance given under the Coronavirus Aid, Relief, and Economic Security Act (CARES) led to which of these problems?

It led to inequity as low-skilled workers who worked in businesses that were deemed essential had to continue going to work at their regular pay, while those who worked in businesses that shut down received a higher compensation.

The percentage of employed people losing their jobs in a particular period is called the:

rate of job separation.

A higher unemployment rate would _____ the employment-to-population ratio and _____ the annual hours worked.

reduce; reduce

When the unemployment rate is at a steady state

the number of people finding jobs equals the number of people losing jobs

The two main reasons for unemployment are:

the time it takes for workers to find jobs and the failure of wages to adjust to a level where labor demand equals labor supply.

The natural rate of unemployment is the rate of unemployment:

toward which the economy gravitates in the long run.

If the steady-state rate of unemployment equals 0.10 and the fraction of employed workers who lose their jobs each month (the rate of job seperations) is 0.02, then the fraction of unemployed workers who find jobs each month (the rate of job findings) must be:

0.18

With a rate of job separation of 0.05 and a rate of job finding of 0.25, the natural rate of unemployment is about _____ percent (rounded to the nearest integer).

17

In the country of Beluxia, the job-finding rate is 0.49, and the natural rate of unemployment is 12.5 percent. The job-separation rate is about _____ percent (rounded to the nearest integer).

7

At a minimum wage of $7.25 per hour, a person working 40 hours per week would have to work for about _____ (nearest integer) weeks to earn $23,850, the 2014 official poverty level of a family of four in the United States.

82

sectoral shift

A change in the composition of demand among industries or regions. Examples: Technology Change & new international trade agreement, Government employment agencies, Public training programs

unemployment insurance

A government program under which unemployed workers can collect benefits for a certain period of time after losing their jobs. reduces - opportunity cost of being unemployed - Urgency of finding work

Although not a goal of the unemployemnt-insurance system, one effect is that system reduces

The rate of job finding

As the relative demand for unskilled workers falls, wages for unskilled workers ________, and unemployment compensation becomes a _____ attractive option

Fall; more

For which group is the minimum wage most often binding?

Teenagers

outsiders

Workers who are not employed and therefore have no influence on wage bargaining.

Sarah is a manager in a company that pays wages that are above the market equilibrium level. She succeeds in substantially reducing turnover and increasing effort among its workforce. These higher wages are MOST likely to:

increase firm profit, so firms do not have an incentive to lower wages, and structural unemployment will persist.

All of these are reasons for frictional unemployment EXCEPT:

unemployed workers accept the first job offer than they receive

The macroeconomic problem that affects individuals most directly and severely is

unemployment

A policy that increases the job-finding rate _______ the natural rate of unemployment

will decrease

According to studies of individual unemployed workers, these workers are MOST likly to find a job

within a few weeks of their unemployment insurance running out

frictional unemployment.

takes time it takes for workers to find jobs that best suit their skills and tastes. Longer unemployment benefits can increase match quality

Structural unemployment occurs when the wage in a labor market is _____ the equilibrium wage.

Above

According to the text, legislation that makes it more difficult to fire employees can cause all of these EXCEPT: A. increase the natural rate of unemployment because the rate of job separation will decrease at the same time that the rate of job finding decreases significantly. B. decrease the natural rate of unemployment because the rate of job separation will decrease by more than the rate of job finding decreases. C. decrease the rate of employment because employers will be less concerned about the well-being of their employees. D. decrease the natural rate of unemployment because the rate of job separation will decrease.

C. decrease the rate of employment because employers will be less concerned about the well-being of their employees.

Which of these is an example of frictional unemployment

Dave searches for a new job after voluntarily moving to San Diego

The job-finding rate in Europe tends to be _____ the job-finding rate in the United States, possibly because unemployment-insurance benefits are more generous in European countries.

Lower than

Wage Rigidity

Prevents labor demand and labor supply from reaching the equilibrium level

The percentage of unemployed people finding jobs in a particular period is called the

Rate of job Finding

Any policy aimed at lowering the natural rate of unemployment must either _______ the rate of job separation or _______ rate of job finding

Reduce; increase

Economists call the changes in the composition of demand among industries and regions

Sectoral Shifts

Unemployment insurance increases the amount of frictional unemployment by:

Softening the economic hardship of unemployment

Shock

Technological progress has shifted labor demand from unskilled to skilled workers in recent decades in US = increased wage gap (skill premium), in Europe = Higher unemployment because of generous government

Unions and collective bargaining have an especially small role in

The United States

If the economy has many discouraged workers

The employement-to-population ratio will be low, but the unemplyment rate will not be much affected

wage rigidity

The failure of wages to adjust to equilibrate labor supply and labor demand Reasons - Minimum-wage laws - Labor unions - Efficiency wages

natural rate of unemployment

The steady-state rate of unemployment; the rate of unemployment toward which the economy gravitates in the long run.

structural unemployment

The unemployment resulting from wage rigidity and job rationing

Efficiency-wage

Theories of real-wage rigidity and unemployment according to which firms raise labor productivity and profits by keeping real wages above the equilibrium level

insiders

Workers who are already employed and therefore have an influence on wage bargaining

The Earned income tax credit

does not raise labor cost

The unemployment rate in the United States is much higher for African Americans than for European Americans. According to the text, one possible reason for this is:

employer discrimination.

When the manufacturing industry shrinks, while the healthcare industry grows, the resulting unemployment is:

frictional.

earned income tax credit

is an amount that poor working families can subtract from the taxes they owe

According to the text, firms pay efficiency wages to their workers for all these reasons EXCEPT to:

keep the outsiders out and form an exclusive workforce of the insiders.

Frictional unemployment is inevitable because:

new workers are constantly entering the job market, and jobs are constantly created and destroyed.