CH12 : Unemployment and its natural rate

Question 1

Define natural unemployment

Answer 1

• Unemployment that does not go away on its own or in the long run.
• Unemployment normally experienced (although not inevitable and still desirable).

Question 2

Define Cyclical Unemployment

Answer 2

• Changes in the business cycle causing unemployment.

Question 3

Define Employed

Answer 3

Working age population (over 15 years of age).

• Employer / employee relationship for pay.
• Without pay, operation of a business/farm,etc.
• Has a job but was unable to work e.g. illness.

Question 4

Define Unemployed

Answer 4

• Had sought work but were without a paid job.

Question 5

Define Not in Labour Force

Answer 5

• Retired, full-time student, not searching for a job.

Question 6

What is the Labour Force?
Unemployment Rate?
Labour-Force Participation Rate?

Answer 6

Employed + Unemployed.
UR = Unemployed / Labour Force x 100
LFPR = LF / Adult Population x 100

Question 7

Major problem of Unemployment?

Answer 7

Not many people unemployed for short periods, but people unemployed for long periods.

Question 8

Define Frictional Unemployment / Job-Search Unemployment

Answer 8

• Unemployment caused during time workers are being matched with jobs.

Question 9

Define Structural Unemployment

Answer 9

• Qs L > Qd L .

- Unemployment when number of jobs available is less than number of people who want these jobs.

Question 10

What influences JFR?

Answer 10

• Govt employment agencies increases.
• Public training programmes increases.
• Unemployment benefit decreases Job Finding Rate and increases Job Separation Rate.

Question 11

What causes Structural Unemployment?

Answer 11

• Minimum-wage laws (increasing min wage)
• Unions (demanding higher wages through strike).
• Efficiency wages (wages higher than equilibrium rate to raise productivity).

Question 12

Benefits of an Efficiency Wage?

Answer 12

• Increased worker health.
• Decreased worker turnover.
• Increased worker quality (higher wages invites better workers).
• Increased worker effort to retain wages.

Question 13

Problems with Unemployment Benefit?

Answer 13

• Inventive to be unemployed.

- Using unemployment benefit for leisure activities.

Question 14

Problems in measuring unemployment?

Answer 14

• People not knowing what category they are (e.g. unemployed or not in labour forrce).
• Almost half of fall in unemployment is people choosing not to work anymore (leaving labour force).