Macro Econ Chapter 11

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The overall population for Region A is 109 million people. The labor force contains 50 million people, 29 million people are employed, and 21 million are unemployed. What is the unemployment rate? Round your answer to two decimals.

21 / 50 = 0.42 42.00%

The overall population for Region A is 98 million people. The labor force contains 50 million people, 35 million people are employed, and 15 million are unemployed. What is the unemployment rate? Round your answer to two decimals.

30%

The table shows employment statistics for a fictional country. Use the information to answer the questions. Round your percentages to two decimal places. Employed - 5505 Unemployed - 492 Not in the labor force - 571 A. What is the total labor force? B. What is the labor force participation rate? C. What is the unemployment rate Suppose 256 of the 492 unemployed people have been unemployed for so long that they stop looking for work. D. What is the new labor force? E. What is the new labor force participation rate? F. What is the new unemployment rate?

A. 5,505 + 492 = 5,997 B. 5505 + 492 + 571 = 6,568 5,997 / 6,568 = 0.91306 91.31% C. 492 / 5,997 = 0.08204 8.20% D. 492 - 256 = 236 236 + 5,505 = 5,741 E. 5,741 + 256 + 571 = 6,568 5,741 / 6,568 = 0.87409 87.41% F. 236 / 5,741 = 0.04111 4.11%

The hypothetical data in the table below displays the percentage that unemployment benefits replace take-home pay for workers in different countries. Belgium - 75%, 70%, 61% Finland - 70%, 60%, 55% Italy - 54%, 50%, 22% Australia- 40%, 25%, 10% Note: The data cover a worker with a dependent spouse and are net rates after taking into account taxes and other means-tested benefits. Which country would you expect to have the lowest long-term unemployment rate?

Australia Australia will likely have the lowest long-term unemployment rate based on the data given. Unemployed individuals in Australia receive a smaller portion of their lost income in unemployment benefits and it is reduced dramatically over time. As such, Australian citizens would have the most incentive to find a job as soon as they are laid off. Italy would be the next lowest, as the benefits do not last too long and drop substantially. Belgium would likely have the highest rate, since a greater portion of their income is replaced.

Suppose that a baby boom occurs between the years 2025-2030, similar to the baby boom following World War II. What do you expect to happen to the labor force participation rate in the year 2090-2100, holding all else constant? The labor force participation rate will...

Decrease since the baby boomers will opt for more leisure Solution: Labor Force Participation Rate = )Number in the Labor Force)/(Working-Age Population)×100 As retirees leave the labor force, the numerator decreases. At the same time, retirees are no longer considered "working-age". However, when a numerator and a denominator both decrease by the same number, the fraction that results is smaller. In this case, the Labor Force Participation Rate falls. Consider the fraction 2/3. If you reduce the numerator by 1 and the denominator by 1, the result is 1/2, which is less than 2/3.

Please classify the given groups of people as either employed, unemployed, or not in the labor force.

Employed - those who worked during the previous week - people temporarily away from their jobs due to illness - people temporarily away from their jobs due to vacation Unemployed - people who do not have a job but actively looked in the last four weeks Not in the labor force - full-time students - people in active military service - full-time home-makers - people in prison - retirees who neither have a job nor are looking for a job - mental patients confined in institutions - people who actively looked for a job during the last 12 months, but not the last 4 months Solution: The labor force includes all employed and unemployed workers in the economy. Full-time students, retirees, people in active military service, mental patients, home‑makers, people in prison, and people who have actively looked for a job in the last 12 months but not in the last four weeks are not considered part of the labor force. People who worked in the week previous to the survey, or were only temporarily away from their jobs due to illness, strike, or vacation are considered employed. People who do not have a job, but actively looked in the last four weeks are considered unemployed.

The natural rate of unemployment equals...

Frictional unemployment plus structural unemployment Solution: The natural rate of unemployment equals the addition of frictional unemployment and structural unemployment. Frictional unemployment is unemployment due to the time workers spend searching for jobs, while structural unemployment occurs because of a surplus of labor in a given market. Both these types of unemployment occur regardless of the prevailing economic condition and, as such, form the natural rate of unemployment. It is a common misconception to believe that the natural rate of employment is fixed, but a number of factors can affect the natural rate. Indeed, anything that changes the prevailing level of frictional and structural unemployment (e.g., job search technology, minimum wage) will also affect the natural rate of unemployment.

Which of the choices is the best example of creative destruction? The typewriter industry goes bankrupt and lays off all its workers. In sharp contrast, the burgeoning electronic word processing industry hires 10,000 workers that same year. This type of unemployment resulting from the shift in industries would best be catagorized under

In the past month, there were 20,000 layoffs but 22,000 new hires Structural unemployment Solution: Creative destruction is a term coined by economist Joseph Schumpeter that describes how economic development (or in this case employment) can come out of the destruction of a prior economic order. The creation of new industries from old ones and the creation of new jobs while old ones disappear are both examples of this. The typewriter industry is no longer used for word processing by most if not all companies in the world today. As such, the workers lose their jobs as a result of structural unemployment due to the permanent shift in the economy.

Firms in the country of Merka, which experiences varying levels of unemployment over time, face a very competitive labor market. Classify the given events according to how each would affect Merka's unemployment rate.

Increase in the unemployment rate - Increase in the minimum wage - Increase in unions' influence Decrease in the unemployment rate - Decreased unemployment benefits - Introduction of employment-at-will doctrine Solution: Regulation and labor market interventions affect structural unemployment as well as the unemployment rate. Unions are associations of workers that negotiate with employers for better wages and working conditions. Strong unions make labor more expensive. An increase of the minimum wage also makes labor more expensive. As a result, firms reduce the quantity of labor they demand and the unemployment rate increases. According to the employment-at-will-doctrine, employees may quit their job and employers may fire their employees at any time and for any reason. The introduction of the doctrine makes the job market more flexible, resulting in a lower unemployment rate. Along similar lines, less generous unemployment benefits increase the incentive for workers to search for and take new jobs, decreasing a country's unemployment rate.

Classify each scenario according to whether it is an example of an active employment at-will doctrine. A tenured organic chemistry professor who cannot be fired despitebeing a horrible teacher. Cathy quits her job as a babysitter despite having only beenhired three weeks ago, because she feels watching over eight toddlersat once will cause her to lose too much sleep. Katherine, a waitress, gets fired from her job after spilling a hot bowlof French onion soup on a customer's shoe. Alex has a clause in his worker's contract stating that if he gets firedduring a recession, he gets a severance package of half his salary paidfor up to six months. Brian, who works for an educational software company, quits. He isnot allowed to work for a competing software company for six monthsdue to a clause in his contract. Wei-Cheng gets fired from his company for no reason other than thathe is the only Asian worker.

Not an example of employment at-will Example of employment at-will Example of employment at-will Not an example of employment at-will Not an example of employment at-will Not an example of employment at-will

Which of the choices is most directly related to cyclical unemployment?

Recessions Solution: Unemployment due to recessions is known as cyclical unemployment. When the economy is at full employment, there is no cyclical unemployment. The age distribution of the population refers to what proportion of the population is any given age. This characteristic of the population is more likely to affect the natural rate of unemployment. An increase in the number of college graduates will increase frictional unemployment, not cyclical, since those who are unemployed upon graduation are normally unemployed due to frictional unemployment. The Internet reduces the time it takes for workers and hiring firms to find each other. This, in turn, affects the time that job-seekers are unemployed in between jobs, or frictional unemployment.

Which of the factors would decrease the rate of frictional unemployment? When the economy is doing well, a significant share of unemployment is frictional.

The advent of the Internet, which makes finding available jobs easier True Solution: In a hypothetical economy with exactly 100100 workers and 100100 jobs, there will still likely be unemployed workers at any point. There is frequently movement in labor markets as workers and firms attempt to find a good match with one another. Neither group has perfect information about the state of the labor market, and this leads to some workers being unemployed as they transition to different jobs. This is called frictional unemployment. Most commonly, frictional unemployment is caused by the scarcity of information; workers don't know all the jobs available, which makes it harder to match them properly to their skills. The Internet has made job searching easier and is thought to have reduced frictional unemployment. When an economy is performing well, there is usually relatively little cyclical unemployment, or unemployment resulting from a downward turn in the business cycle. Because cyclical unemployment is lower during economic expansions, much of the existing unemployment is frictional in nature, as workers move from job to job searching for a good match.

Employment laws can vary significantly by country. For instance, in the United States, many jobs are governed by the principle of employment at-will. Employment at-will is rarer in certain countries in Europe, such as Portugal. Regulation and collective bargaining impact labor markets to a larger extent in Europe than in the United States. How do European labor markets compare to the labor market in the United States as a result of these varying labor laws?

The labor market in Europe is less flexible than in the United States Solution: The costs of hiring and firing in Europe are considerably higher than they are in the United States. Because employment is not at will, firms cannot fire employees for any reason. Instead, European firms often need government or union approval to terminate an employee. Public law and collective bargaining (unions), rather than the firm, govern the principles of things like overtime pay, severance pay, and sick leave. During times of layoffs, the firms cannot choose at will which workers to fire, but instead must follow strict guidelines. All else equal, jobs are harder to find in Europe because the costs of hiring are that much higher. Although job security is higher if you can attain a job, firms are more cautious to hire, given the fact that they may be stuck with a worker they cannot rid themselves of even in times of seemingly high demand. As such, it is relatively harder for the unemployed to find jobs in Europe, which result in high long-term and short-term unemployment in Europe.

After a financial crisis hits the country of Cinfuria, 5 million people become unemployed. If 45 million individuals are lucky enough to keep their jobs, what is the unemployment rate? Please specify your answer to two decimal places.

The unemployment rate is the percentage of people in the labor force who are willing and able to work, actively seeking work, but are not yet working. It is given by the formula, where U is the number of people unemployed, and E is the number of people employed. unemployment rate=U/(U+E) × 100% In this example, the unemployment rate is unemployment rate = 5 million/ (5 million+45 million) × 100% = 10.00%


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