ch 15 econ

when a minimum wage law forces the wage to remain above the level that balances S&D

- it raises the quantity of labor supplied and reduces the quantity of labor demanded compared to the equilibrium lebel - there is a surplus of labor bc there are more workers willing to work than there are jobs, some workers unemployed

to be considered unemployed

NO JOB and ACTIVELY looking for one

workers quit jobs for many reasons:

to take jobs at other firms, to move to other parts of the country, to leave the labor force, and so on

labor force=

unemployed + employed not total pop or adult pop

u rate

unemployment rate

frictional unemployment

unemployment that results because it TAKES TIME for workers to search for the jobs that BEST SUIT THEIR TASTES and skills increased by: - unemployment insurance - gov policy designed to protect the incomes of workers who lose their jobs

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 ex) Jobs avail in some labor markets may be insufficient to givea job to everyone who wants one

efficiency wages vid

- there's an absence of waste - producers are the lowest cost producers possible - good being consumed by those people who value it the highest - economy being efficient?--> diff to measure

how to facilitate job search

1. government-run employment agencies: give out info ab job vacancies 2. public training programs: aim to ease workers' transition from declining to growing industries and to help the disadvantaged groups escape poverty

help to explain why some workers dont have jobs

1. job search 2. minimum-wage laws 3. unions 4. efficiency wages

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. 40 b. 20 c. 10 d. 30

10

unemployment rate=

100 x (# unemployed/ labor force)

labor-force participation rate=

100x (labor force/adult pop)

Using the numbers in the preceding question, what is the size of Ectenia's labor force? a. 60 b. 70 c. 80 d. 50

70

worker quality

All firms want workers who are talented, and they strive to pick the best applicants to fill job openings.

considered employed

Anyone in the adult population who worked for pay in the last week, even if unsatisfied with his or her job, is considered employed.

how unemployment is measured

BLS drives pop into 3 groups - employed: paid employees, self-employed and unpaid workers in a family business - unemployed: people not working who have looked for work during previous 4 weeks - not in labor force: everyone else

Although the economy will always have some unemployment, its natural rate does change over time.

Many events and policies can alter the amount of unemployment the economy typically experiences.

are discouraged workers included in the u rate

NO!! unemployed who give up looking for work, so no longer considered unemployed

frictional vs structural unemployment

S: arises from an above-equilibrium wage F: arises from the process of job search

Which of the following statements correctly describe discouraged workers?

They have given up on looking for a job. They have not looked for a job in 4 weeks (or longer), but they would like a job and are available for work. They are counted as part of the labor force by the Bureau of Labor Statistics. They are dissatisfied with their current jobs and are considering quitting.

"conspiracy in restraint of trade,"

When firms selling similar products agree to set high prices, the agreement is considered this the government prosecutes the firms in civil and criminal court for violating the antitrust laws.

unemployment insurance

a government program that partially protects workers' incomes when they become unemployed not eligible: - quit jobs - fired for cause - just entered labor force

The Bureau of Labor Statistics calculates this statistic monthly based on

a survey of thousands of households.

critics argue the unions are merely

a type of cartel. When unions raise wages above the level that would prevail in competitive markets, they reduce the quantity of labor demanded, cause some workers to be unemployed, and reduce the wages in the rest of the economy. The resulting allocation of labor, critics argue, is both inefficient and inequitable

union

a worker association that bargains with employers over wages and working conditions

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

a. frictional unemployment

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.

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

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 unions d. unemployment due to efficiency wages

a. frictional unemployment

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

a. full-time.

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. decreasing the demand for workers in the unionized sector. c. increasing the demand for workers in the unionized sector. d. increasing the wage in the unionized sector, which may create a decrease in the supply of workers in the nonunionized sector.

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

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

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

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

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

a. the quantity of labor supplied will exceed the quantity of labor demanded and there will be unemployment. A VERY IMP PART OF THIS

efficiency wages

above-equilibrium wages paid by firms to increase worker productivity According to this theory, firms operate more efficiently if wages are above the equilibrium level. Therefore, it may be profitable for firms to keep wages high even in the presence of a surplus of labor.

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

b. 1

because different regions of the country produce different goods, employment can

rise in one region while it falls in another.

Someone who is cyclically unemployed lost their job due to: a. Someone else working for a lower wage. b. A downturn in the economy. c. Advancements in technology. d. Foreign competition.

b. A downturn in the economy.

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. Paying above the competitive equilibrium wage may improve worker health, lower worker turnover, improve worker quality, and increase worker effort. c. Firms do not have a choice about whether they pay efficiency wages or not because these wages are determined by law. d. Paying the lowest possible wage is always the most efficient (profitable).

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

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. decrease, decrease b. increase, decrease c. increase, increase d. decrease, increase

b. increase, decrease

If unemployment insurance were so generous that it paid laid-off workers 95 percent of their regular salary, a. the official unemployment rate would probably understate true unemployment. b. the official unemployment rate would probably overstate true unemployment. c. there would be no impact on the official unemployment rate. d. frictional unemployment would fall. e. none of the above is true.

b. the official unemployment rate would probably overstate true unemployment.

Economists say that the allocation of resources is efficient if a. consumer surplus is maximized. b. total surplus is maximized. c. producer surplus is maximized. d. sellers' costs are minimized

b. total surplus is maximized.

right-to-work laws

bar a union and employer from requiring workers to financially support the union. Absent such laws, a union can seek an agreement during collective bargaining that requires all employees to pay either union dues (for union members) or an agency fee (for nonmembers) as a condition of employment.

insiders

benefit from high union wages

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

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

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

c. find that its workers quit less frequently.

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.

Allocation of resources is inefficient only if a. producer surplus is zero. b. some of the potential gains from trade among buyers are sellers are not being realized. c. consumer surplus is lower than producer surplus. d. consumer surplus is equal to producer surplus.

c. some of the potential gains from trade among buyers are sellers are not being realized.

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

c. the natural rate of 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.

sectoral shifts

changes in the composition of demand across industries or regions of the country

Frictional unemployment is often the result of

changes in the demand for labor among different firms

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

d. 15

Unions try to create what market structure? a. Perfect competition in the market for an output. b. An oligopoly in the sale of labor. c. Monopolistic competition in the market for an output. d. A monopoly in the market for labor.

d. A monopoly in the market for labor.

The Labor Force is made up of: a. All employed plus retired people. b. All people over the age of 18. c. All people who have a full-time job. d. All employed and unemployed people who fit the definitions.

d. All employed and unemployed people who fit the definitions.

The main policy goal of unemployment insurance is to reduce the a. search effort of the unemployed. b. role of unions in wage setting. c. amount of frictional unemployment. d. income uncertainty that workers face.

d. income uncertainty that workers face.

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.

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

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

One unintended consequence of unemployment insurance is that it reduces the a. income uncertainty that workers face. b. role of unions in wage setting. c. amount of frictional unemployment. d. search effort of the unemployed.

d. search effort of the unemployed.

outsiders

do not get the union jobs

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.

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

e. raise the minimum wage

Minimum-wage laws and unions prevent firms from

lowering wages in the presence of a surplus of workers.

As the information revolution changes the process of job search, as Congress and state legislatures adjust the minimum wage, as workers form or quit unions, and as firms change their reliance on efficiency wages, the natural rate of unemployment

evolves

worker effort

firms monitor the efforts of their workers, and workers caught shirking their responsibilities are fired.

Changing patterns of international trade are also a source of

frictional unemployment.

a firm can reduce turnover among its workers by paying them high/low wages.

high

Efficiency-wage theory states that such a constraint on firms is unnecessary because,

in some cases, firms may be better off keeping wages above the equilibrium level.

discouraged workers

individuals who would like to work but have given up looking for a job

The BLS considers a person to be unemployed if he or sh

is in the adult population, did not work for pay in the previous week, and has actively looked for work during the preceding 4 weeks.

In the end, there is/is not consensus among economists about whether unions are good or bad for the economy.

is not

Why do firms care about turnover?

it is costly for firms to hire and train new workers even after they are trained, newly hired workers are not as productive as experienced ones Firms with higher turnover, therefore, will tend to have higher production costs. Firms may find it profitable to pay wages above the equilibrium level to reduce worker turnover.

Advocates contend that unions are a

necessary antidote to the market power of the firms that hire workers. The extreme case of this market power is the "company town," where a single firm does most of the hiring in a geographical region. that unions are important for helping firms respond efficiently to workers' concerns.

unions

orgs made of groups of workers with same specialization or all work in same industry problem faced: have to decide whether to max employment or wages/earnings of workers (trade-off) - offer their members collective bargaining collective bargaining: union as a group negotiates with the employer; indiv will not have the negotiation power--> GROUP/COLLECTIVE BARGAINING= more power

Why should firms want to keep wages high?

paying higher wages might increase profitability by increasing the efficiency of a firm's workers.

Bureau of Labor Statistics (BLS)

produced: - based on a MONTHLY survey of 60,000 households: current pop survey - based on "adult pop" (16 yrs or older)

National Labor Relations Act

prohibits employers from interfering in certain ways with workers trying to organize unions, and in unionized companies, it requires employers and unions to bargain in good faith when negotiating the terms of employment.

when a union raises the wage above the equilibrium level, it

raises the quantity of labor supplied and reduces the quantity of labor demanded, resulting in unemployment

most economists agree that eliminating unemploy insurance would reduce/increase frictional unemploy

reduce

if the wage is kept above the equilibrium level for any reason...

result is unemployment

cyclical unemployment

the deviation of unemployment form its natural state unemployed bc of a downturn in the business cycle

natural rate of unemployment

the normal rate of unemployment around which the unemployment rate fluctuates

strike

the organized withdrawal of labor from a firm by a union

labor-force participation rate

the percentage of the adult population that is in the labor force

the unemployment rate is

the percentage of those who would like to work who do not have jobs

why unions are exempt from these laws.

the policymakers who wrote the antitrust and labor laws believed that workers needed greater market power as they bargained with employers.

collective bargaining

the process by which unions and firms agree on the terms of employment

job search

the process by which workers find appropriate jobs given their tastes and skills

labor force

the total number of workers, including both the employed and the unemployed

In all three cases, unemployment is the result of

wages above the level that balances the quantity of labor supplied and the quantity of labor demanded.

searching

when job search is the explanation for unemployment, SEARCHING for jobs that best suit their tastes and skills

waiting

when the wage is above the equilibrium level, the quantity of labor supplied exceeds the quantity of labor demanded and workers are unemployed bc they are WAITING for jobs to open up

In the U.S. economy, most people who become unemployed find work

within a short period of time

A fourth and final type of efficiency-wage theory emphasizes the link between wages and

worker effort

The first and simplest type of efficiency-wage theory emphasizes the link between wages and

worker health Better-paid workers eat a more nutritious diet, and workers who eat a better diet are healthier and more productive.

A second type of efficiency-wage theory emphasizes the link between wages and

worker turnover