Principles of Macroeconomics - Chapter 9
Anthony owns a landscaping business that has 4 employees. His company is able to earn revenue of $600 per day. He knows that if he hires another worker, he would have to pay that worker $50 per day and the company would earn revenue of $680 per day if the new worker is hired. Determine the value of the marginal product of labor of the employee that Anthony is considering hiring.
$80
The equation for the labor force participation rate is defined as ____________.
.100 * (Labor Force / Potential members)
Based on your answer to the previous part, which of the following statements are likely to be true of structural unemployment?
1) An increase in structural unemployment due to an influx of young workers is a supply-side effect 2) An increase in structural unemployment due to the reluctance of employers to hire unskilled workers is a demand-side effect.
Which of the following is the factors that can increase wage rigidity in the labor market?
1) Collective Bargaining 2) Worker resistance to a decline in wages. 3) Increased union membership.
Which of the following data sources are required to understand the impact of the demand-side effect and the supply-side effect on structural unemployment? (Select all that apply)
1) Data on wages for various jobs accepted by youth 2) Data on the number of youths hired across industries
What other reasons might explain why unemployment is lower among workers with a relatively higher level of education?
1) More educated workers have a higher opportunity cost of time. 2) More educated workers have more human capital. 3) Workers with a higher level of education are in greater demand by firms.
Which of the following is an example of what economists refer to as job search?
1) People that engage in the job hunt by sending out resumes. 2) An individual that engages in the job hunt by determining who is hiring and how much they pay. 3) A person who applies for a high-paying job but does not qualify, so she begins searching for an appropriate position.
In recent years, countries around the world have faced a youth unemployment crisis. According to a report by the International Labour Organization, the global youth unemployment rate in 2016 was 2.9 times higher than the global adult rate. Suppose that the labor market shows the demand and supply curves for workers over the age of 22 with a minimum wage of $10. Which of the following factors will result in an increase in structural unemployment?
1) The reluctance of employers to hire unskilled workers 2) An influx of young workers
Some countries, such as the UK, have attempted to reduce youth unemployment by implementing a lower minimum wage for workers under the age of 20. The lowering of the minimum wage is likely to_________ unemployment since the wage is now _________ the market wage.
1) reduce structural 2) closer to
The equation for the unemployment rate is defined as ____________.
100 * (Unemployed / Labor force)
KEY POINT
A healthy economy would expect some level of unemployment, since it is time consuming for firms to find their preferred workers and for workers to choose their preferred job. This unemployment that arises from this necessary process is called frictional unemployment. A healthy economy would seek to have zero cyclical unemployment, which arises during recessions, and may seek to eliminate long-run structural unemployment, which is frequently considered to be economically inefficient.
KEY POINT
A person holding a full-time or part-time paid job is employed. A worker is unemployed if she does not have a job, has actively looked for work in the prior four weeks, and is currently available for work. The labor force is the sum of all employed and unemployed workers.
The Earned Income Tax Credit (EITC) provides low-income workers with a refundable tax credit (reducing the tax obligations of the worker). The recipient must have a job, and the amount of the credit depends on marital status, income, and number of children. Which of the following outcomes is likely to be true if there is an expansion of the EITC policy rather than an increase in the minimum wage?
An expansion of the EITC policy will lead to a decrease in involuntary unemployment, while an increase in the minimum wage will result in an increase in involuntary unemployment.
Which of the following is not an example of someone who is frictionally unemployed?
Carl, who is currently taking classes full time in order to qualify for a management position.
Which of the following does not cause the labor supply curve to shift?
Changes in the wage rate paid to workers.
Which of the following factors does not cause a shift in the labor demand curve?
Changes in the wage rate.
Suppose the local pizza restaurant wants to hire another delivery driver to replace the worker who recently quit. The former worker could make 40 deliveries per week. The restaurant has received three applications from equally qualified workers. If it hires any one of these workers, it could boost deliveries by 30 deliveries per week. If each of these applicants is capable of boosting deliveries by 30 per week, what would happen to deliveries if the restaurant hired all three of the applicants?
Deliveries would increase by less than 90 per week, since there will be diminishing marginal product of labor.
The period from 2007 to 2009 was a time of economic contraction that came to be known as the "Great Recession." During periods of recession, most firms experience a decline in demand for their product, as well as a decline in the product's equilibrium price. All other things being equal, macroeconomic theory predicts that the wage of most workers should decline in recessionary periods. However, this was not the case in the Great Recession, or during many other economic downturns throughout recent history. Based on the discussion in the chapter, explain why this might be so, and what the implications are for unemployment.
During downturns workers are resistant to the lowering of wages and firms try to avoid doing so. This downward wage rigidity keeps the quantity of labor supplied greater than demand, causing unemployment.
What type of unemployment does job search lead to?
Frictional Unemployment: Unemployment resulting from imperfect information about available jobs and from the time-consuming process of job search is frictional unemployment.
According to salary.com, the average salary for a software engineer level III (a higher-level position in software design and implementation) in the Silicon Valley area of California is $108,244. However, Google pays its level III software engineers an average salary of $124,258.
Google is paying an efficiency wage in order to minimize worker turnover, increase worker productivity, and attract the top talent.
Which of the following outcomes is likely to occur if the minimum wage is lowered?
Involuntary unemployment could increase because now firms will not be willing to consider young workers as good substitutes for experienced workers.
Which of the following is likely to be a disadvantage of the EITC?
It could reduce the labor participation rate of low-income individuals as they will try to meet the eligibility criteria.
Which of the following is true regarding wage rigidity?
It occurs when wages are held fixed above the competitive equilibrium level.
Which of the following would cause the labor demand curve to shift to the right?
Many factors can change the value of the marginal product of labor at each quantity of labor and thus cause the entire labor demand curve to shift to the left or right. A movement along the labor demand curve occurs when the wage changes and no other economic variables change other than the quantity of labor demanded.
Which of the following would not be an example of someone in the labor force?
Mark, 45, a self-made millionaire, who volunteers full-time between several local charities
Structural unemployment can be caused by ____________.
Minimum wage laws, labor unions
Sometimes new technology in production reduces the time that a worker takes to complete a task. Technological innovations can also completely replace a factory worker. Does this mean that technological progress will lead to large-scale unemployment?
No, some sectors may experience unemployment as a result of the innovations but overall productivity and incomes will increase, leading to more employment opportunities.
Which of the following people are counted as potential workers?
People who are already employed full-time. NOT: 1) People on active duty in the military. 2) Children under the age of 16. 3) People that are institutionalized.
Which of the following would be classified as unemployed?
Someone who is not working and looked for work two weeks ago.
Which of the following is not true regarding the natural rate of unemployment?
The natural rate of unemployment is 0 percent when the U.S. economy is not in a recession. IS TRUE: 1) The natural rate includes both frictional and structural unemployment. 2) The natural rate of unemployment does not include cyclical unemployment. 3)The natural rate is calculated by averaging the unemployment rate over an extended time period.
In April 2012, the Bazanian Daily, a leading newspaper in the country of Bazania, carried a report titled "20,000 jobs added in the last quarter; unemployment rate shoots up from 5 percent to 6.7 percent." How could the unemployment rate in Bazania increase even when new jobs were created?
The new jobs may have made discouraged workers optimistic enough to start applying for jobs, thus re-entering the labor force and being counted as unemployed, which causes the overall unemployment rate to increase.
The graph on the right shows a labor market in equilibrium. The equilibrium wage is $10 per hour. At this wage, there are people who are not working, which is represented by the segment of the labor supply curve above the equilibrium wage. Why are these people not working in this market?
These people are only willing to work for wages above the market-clearing wage.
Which of the following best explains why the labor supply curve slopes upward?
When wages increase, the opportunity cost of not working increases, leading people to seek more work hours.
In a recent study for the National Bureau of Economic Research (NBER), four researchers looked at the effect of generous unemployment benefits on the local unemployment rate. They compared the unemployment situation in adjoining counties, which happened to lie in two different states that had different laws regarding the amount and duration of unemployment benefits. (Re-read the section on "A Natural Experiment of History" in Chapter 8 of the text to understand how the NBER research is based on a "natural experiment.") The authors of the NBER study found that the unemployment rate "rises dramatically in the border counties belonging to the states that expanded unemployment benefit duration" during the Great Recession. Why might this be so?
With the longer duration of unemployment benefits, firms needed to keep wages high to attract people to work. This caused downward wage rigidity, leading to persistent higher unemployment.
All of the following result from paying efficiency wages except ____________.
a surplus of labor demand. These result from paying efficiency wages: 1) a higher marginal product. 2) reduced training costs. 3) structural unemployment.
Industry demand curves are _________ together to derive the aggregate labor demand curve. In so doing, economists are able to ________ different industries to look at the aggregate labor situation.
added; combine
This results in a labor demand curve that is
downward-sloping
Unemployment statistics are measured and released by the Bureau of Labor Statistics (BLS), a division of the U.S. Department of Labor. The BLS officially classifies a person as being employed ____________.
if that person holds either a part-time or full-time paid job.
Downward wage rigidity can_________ structural unemployment when labor demand decreases. In times of recession, __________ workers are laid off so that continuing workers keep their_____________ market-clearing wage.
increase; more; above
The upward slope of the labor supply curve indicates that the opportunity cost of leisure ______ as the wage increases. The steeper the slope of the labor supply curve, the ______the likelihood of new entries into the market.
increases; lower
If a significant tax reduction was offered to families that homeschool their children, we would most likely see a ____________.
leftward shift in the labor supply curve.
The value of the marginal product of labor is the ____________.
market value of a worker's additional output for a firm.
Collective bargaining usually results in ____________
negotiated wages being above the market-wage
Explain whether each of these individuals will be counted as a part of the labor force. Alex is a full time at home parent while his wife works. John is a full time student that volunteers on the weekends at an animal shelter. We know that Alex is ____________, and we know that John is ____________.
not in the labor force; not in the labor force.
The labor force equation is equal to the number employed
plus the number unemployed
The fact that unemployment is lower among workers with a relatively higher level of education can be explained in part by the
principle of optimization
The demand for labor ____________.
reflects diminishing marginal productivity.
A competitive labor market is in equilibrium when ____________.
the quantity of labor demanded and the quantity of labor supplied are equivalent.
A profit-maximizing firm will continue to hire workers until ___________.
the revenue from the marginal worker equals the wage rate.
Potential workers are classified as being unemployed when ____________.
they do not have a paid job, have looked for work in the previous 4 weeks, and are available for work.
Firms should hire workers until the ____________.
value of the marginal product of labor is at least as great as the wage paid.
The labor demand curve shows the quantity of labor demanded will decrease as
wages increase
Structural unemployment is the unemployment that arises ____________.
when wage rigidity creates a persistent gap between labor supply and labor demand.
Those who are voluntarily unemployed are ____________.
willing to work, but not at the prevailing wage.
