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21 Cards in this Set
- Front
- Back
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The average rate of unemployment around which the economy fluctuates.
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The natural rate of unemployment.
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True or False: 0 unemployment is a good thing.
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False.
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Labor Force Equation
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L = E + U
where L = labor force E = employed people U = unemployed people |
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Rate of Job Separation (s)
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The fraction of people who lose or leave their job every month.
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Rate of Job Finding (f)
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The fraction of people who find a job each month.
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Steady-State unemployment rate
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U / L
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Any policy aimed at reducing the natural rate of unemployment must ______ the ____ __ ___ __________ or _________ the ____ ___ _______.
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decrease / rate of job separation
increase / rate of job finding |
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Two underlying reasons for unemployment: _______ & _______.
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1. Job Search
2. Wage Rigidity |
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What is meant by the reasoning of the job search being an underlying reason for unemployment?
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It takes time to find a job because workers have difference preferences and abilities and jobs have different attributes.
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Frictional unemployment
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unemployment caused by the time it takes workers to search for a job.
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Why is frictional unemployment avoidable?
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Because the job market changes as industries change. It's called sectoral shift.
For example: the Industrial Revolution -- fewer farmers needed! |
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Which government program inadvertently increases the amount of frictional employment?
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Unemployment insurance!
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Wage rigidity
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Failure of wages to adjust to a level at which labor supply = labor demand
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If real wage is above the market clearing level that puts labor supply and demand into equilibrium, which exceeds the other: supply or demand?
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Supply! There are too many people and not enough jobs.
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Structural unemployment
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The unemployment resulting from wage rigidity and job rationing
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Three causes of wage ridigity:
1. 2. 3. |
1. Minimum-wage Laws
2. Monopoly Power of Unions 3. Efficiency Wages |
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Efficiency wages imply what?
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High wages make workers more productive
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Four wage efficiency theories:
1. 2. 3. 4. |
1. Wages influence nutrition. Better paid workers can afford better food. Healthier employees are productive employees.
2. High wages reduce labor turnover. 3. Quality of a firm's work is dependent on the wage it pays its workers. Well paid people produce good work. 4. Higher wages produce more effort (and ties into #3) |
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What determines the natural rate of unemployment?
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The rate of job finding versus job separation determines the natural rate of unemployment.
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Describe the difference between frictional unemployment and structural unemployment.
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Frictional unemployment is unemployment cause by the time it takes someone to find a job.
Structural unemployment is the unemployment that results from wage rigidity and job rationing. Structural unemployment occurs when there is either a complete mismatch between the unemployed and available jobs or there is a severe shortage of jobs. |
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What are three causes that may keep the real wage above the level that equilibrates labor supply and labor demand.
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1. Minimum wage laws.
2. Unions 3. Efficiency Wages |
