Intermediate Macro Chapter 7: Unemployment and the Labor Market

What were the 3 main factors that increased the labor force participation rate prior to 1990

-Baby boomers enter the workforce -More women enter the workforce -More college educated people enter the workforce

What are the two reasons for frictional unemployment?

1) Job search 2) Wage rigidity

What are three main reasons behind wage rigidity?

1) Minimum wage laws 2) Labor Unions: power used to secure higher wages 3) Efficiency Wages: higher wages increase worker productivity because the higher wages attract better talent, encourage workers to be more productive, and reduces turnover

What is a benefit on unemployment insurance?

Allows more time for workers to find jobs that fit their skillsets

Why are some reports on payrolls seasonally adjusted?

Because companies will often hire more people in later parts of the year and then let them go in January

Why does unemployment peak AFTER a recession is over?

Because employers do not know the recession is over until a few quarters after time has passed, so they are still weary of hiring.

This type of unemployment results directly from cycles of economic upturn and downturn

Cyclical unemployment

What is the equation for employment ratio?

Employed / Adult Population x 100

True or False: Volunteers for religious groups count as an employed person

FALSE

This type of unemployment is caused by the time it takes workers to search for a job

Frictional unemployment

Agencies that disseminate info about job openings to better match workers and jobs are called:

Government employment agencies

What is one important reason that mothers leave the labor force?

High childcare costs leads to mothers staying at home

This is a theory that believes that long-term unemployment leaves permanent scars on the economy:

Hysteresis

What is the main negative effect of unemployment insurance?

Increases frictional unemployment

What is the equation for Labor Force Participation Rate?

Labor Force / Adult Population x 100

What is the rational behind hysteresis?

Long-term unemployed people lose valuable job skills and over time, become less committed to the labor market

In order to be counted as unemployed, a person must do what?

Make an effort of finding employment within 4 weeks of when the data was collected

These are people not in the labor force who want and are available for work, and who have looked for a job, just not recently

Marginally attached workers

This is a dominant employer thats sets the wages for a small economy

Monopsony

This type of unemployment is the average rate of unemployment around which the economy fluctuates

Natural Rate of Unemployment

What is the equation for the natural rate of unemployment?

Natural Rate of Unemployment = Actual Unemployment Rate - Cyclical Unemployment Rate

What does unemployment insurance do?

Pays for a part of a worker's former wages for a limited time after the worker loses his job

Programs that help workers displaced from declining industries get skills needed for jobs in growing industries are called:

Public job training programs

This type of unemployment is caused by mismatch of skills and location between the employee and the employer

Structural unemployment

Why were there less service workers in the leisure and hospitality industry after the pandemic?

They moved to industries that offered better pay and more stability

What is the equation for unemployment rate?

Unemployment Rate = Unemployed / Labor Force x 100

How is the unemployment rate described during the steady state?

Unemployment is constant -number who people who become unemployed must equal the number of people who become employed

What is wage rigidity?

When wages fail to adjust after labor demand falls. Wage rate is above the market rate which leads to a labor surplus of supply. This causes unemployment

Labor productivity is a ratio of what?

output per hour

What is the equation for natural rate of unemployment?

s / (s + f)

What is the steady state condition of unemployment?

s x E = f x U (rate of job separation)(number of employed people) = (job finding rate)(number of unemployed people)