econ 261 exam 3 chapter 15
Normal rate of unemployment about which the unemployment rate fluctuates
natural rate of unemployment
labor force formula
# of employed + # of unemployed
Labor-force participation rate formula
(labor force/adult pop.) x 100
unemployment rate formula
(number of unemployed/labor force) x 100
The unemployment rate is
5.8 %
The labor-force participation rate is
70.2%
Use the following table to answer questions 3, 4 and 5. Numbers are in millions. Total population 195.4 Adult population 139.7 Number of unemployed 5.7 Number of employed 92.3 The labor force is
98.0 million
An organized withdrawal of labor from the firm
strike
Legislation that makes it illegal to require union membership for employment
right-to-work laws
Union:
A worker association that bargains with employers over wages, benefits, and working conditions
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
All of the above
How might the government help reduce frictional unemployment?
By establishing employment agencies and worker training programs to retrain workers laid off in the contracting sectors.
The deviation of the unemployment rate from its natural rate
Cyclical unemployment
A minimum wage is likely to have a greater impact on the market for skilled workers than on the market for unskilled workers.
F: a minimum wage has a greater impact on low-wage workers.
An efficiency wage is like a minimum wage in that firms are required by legislation to pay it.
F: efficiency wages are paid voluntarily by firms.
Paying efficiency wages tends to increase worker turnover because workers can get continually higher wages if they "job hop."
F: efficiency wages reduce turnover
Due to the existence of "discouraged workers," the official unemployment rate may overstate true unemployment.
F: the official unemployment rate may understate true unemployment.
If the unemployment rate falls, we can be certain that more workers have jobs.
F: the unemployment rate falls when unemployed workers leave the labor force.
If wages were always at the competitive equilibrium, there would be absolutely no unemployment.
F: there would still be frictional unemployment
The unemployment rate is about the same for the various demographic groups: men, women, black, white, young, old.
F: unemployment differs across demographic groups.
The presence of unemployment insurance tends to decrease the unemployment rate because recipients of unemployment benefits are not counted in the labor force.
F: unemployment insurance increases the unemployment rate because it increases frictional unemployment.
Which type of unemployment will occur even if the wage is at the competitive equilibrium? Why?
Frictional unemployment because job matching takes time even when the wage is at the competitive equilibrium. Also, continuous sectoral shifts and new entrants into the job market make some frictional unemployment inevitable.
Where would a labor union be more likely to increase efficiency rather than reduce it: a small remote town with one large employer or a major city with many employers? Why?
In a small "company" town where a single company has market power that may depress the wage below the competitive equilibrium. This may need to be offset by organized labor.
Name two ways that a union increases the disparity in wages between members and nonmembers.
It raises the wage above the competitive equilibrium in the unionized sector. Some of those unemployed in the unionized sector move to the nonunionized sector, increasing the supply of labor and lowering the wage in the nonunion sector.
BLS (Bureau of Labor Statistics) then computes:
Labor force, unemployment rate, labor-force participation rate
Explain the statement, "Most spells of unemployment are short, and most unemployment observed at any given time is long term."
Many people are unemployed for short periods. A few people are unemployed for very long periods.
Does the minimum wage cause much unemployment in the market for accountants? Why or why not?
No because the competitive equilibrium wage for accountants exceeds the minimum wage, and hence, the minimum wage is not a binding constraint for accountants.
Which of the following statements about efficiency wage theory is true?
Paying above the competitive equilibrium wage may improve worker health, lower worker turnover, improve worker quality, and increase worker effort.
Which of the following statements is true?
Prime-age men and women tend to have similar unemployment rates.
Name two reasons why the unemployment rate is an imperfect measure of joblessness.
Some people claim to be looking for work just to collect unemployment benefits, or they are being paid "under the table." Others are discouraged workers and have stopped looking for work due to an unsuccessful search.
A union is a labor cartel.
T
Advocates of unions argue that unions may increase efficiency in some circumstances because they decrease the cost of bargaining between labor and management.
T
Firms may voluntarily pay wages above the level that balances the supply and demand for workers because the higher wage improves the average quality of workers that apply for employment.
T
In post-World War II United States, the labor-force participation rate has been rising for women and has been falling for men.
T
The natural rate of unemployment is the amount of unemployment that won't go away on its own, even in the long run.
T
The presence of a union tends to raise the wage for insiders and lower the wage for outsiders.
T
Whenever the wage rises above the competitive equilibrium, regardless of the source, the result is additional unemployment.
T
Which of the following individuals is most likely to be unemployed for the long term: a buggy whip maker who loses his job when automobiles become popular or a waitress who is laid off when a new cafe opens in town? Why?
The buggy whip maker. He will have to retrain because the contraction of the buggy whip business is permanent, while the waitress may just have to relocate, possibly just down the street.
Which alternative measure of unemployment attempts to include the impact of discouraged workers in the unemployment statistics? Explain. Is it higher or lower than the official unemployment rate? Explain.
U4. It is total unemployed plus discouraged workers as a percent of the civilian labor force plus discouraged workers. It is a little higher than the official unemployment rate because it includes some nonworking people who have given up looking for work and have fallen out of the labor force.
How does unemployment insurance increase frictional unemployment?
Unemployed workers devote less effort to their job search, turn down unattractive job offers, and are less concerned with job security.
Changes in the composition of demand across industries or regions
sectoral shifts
The process by which unions and firms agree on labor contracts
collective bargaining
A minimum-wage law tends to
create more unemployment in low-skill job markets than in high-skill job markets.
Workers who stop looking for work due to an unsuccessful search
discouraged workers
Wages voluntarily paid in excess of the competitive equilibrium wage to increase worker productivity
efficiency wages
Sectoral shifts tend to raise which type of unemployment?
frictional unemployment
Unemployment due to the time it takes for workers to search for the jobs that best suit their tastes and skills
frictional unemployment
Which of the following types of unemployment will exist even if the wage is at the competitive equilibrium?
frictional unemployment
Which of the following is not a characteristic of minimum-wage workers? They tend to be
full time.
Unions tend to increase the disparity in pay between insiders and outsiders by
increasing the wage in the unionized sector, which may create an increase in the supply of workers in the nonunionized sector.
Those employed in union jobs
insiders
The process by which workers find appropriate jobs given their tastes and skills
job search
The total number of workers, which is the sum of the unemployed and the employed
labor force
Percentage of the adult population in the labor force
labor-force participation rate
Unemployed:
not employed but were available for work and looked for work in the last four weeks, or on temporary layoff
Not in labor force:
not in previous 2 categories (student, homemaker, retiree)
According to the Bureau of Labor Statistics, a husband who chooses to stay home and take care of the household is
not in the labor force.
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
not in the labor force.
Unions might increase efficiency in the case where they
offset the market power of a large firm in a "company town."
minimum wage laws:
one source of structural unemployment; force the wage to remain above equilibrium wage; causes quantity of labor supplied to exceed the quantity of labor demanded- surplus of unemployment
Those not employed in union jobs
outsiders
Which of the following government policies would fail to lower the unemployment rate?
raise the minimum wage
Unemployment that results because the number of jobs available in some labor markets is insufficient for everyone who wants a job to get one
structural unemployment
Which one of the following types of unemployment results from the wage being held above the competitive equilibrium wage?
structural unemployment
The amount of unemployment that the economy normally experiences is known as
the natural rate of unemployment.
If unemployment insurance were so generous that it paid laid-off workers 95 percent of their regular salary,
the official unemployment rate would probably overstate true unemployment.
If, for any reason, the wage is held above the competitive equilibrium wage,
the quantity of labor supplied will exceed the quantity of labor demanded, and there will be unemployment.
Some frictional unemployment is inevitable because
there are changes in the demand for labor among different firms.
unemployment rate
unemployed/labor force
A government program that pays laid-off workers a portion of their original salaries
unemployment insurance
Percentage of the labor force that is unemployed
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
Worker association that bargains with employers over wages, benefits, and working conditions
union
Employed:
worked as paid employees, worked in their own business or family bus (full or part-time), or had a job but didn't work due to temporary absence
