Chapter 10 Concepts and Terms

Question 1

for any particular plant size, as more labor is used, the extra output that an employee can produce declines at some point. So the value of hiring an extra worker falls as more employees are hired.

Answer 1

Law of Diminishing Returns

Question 2

Marginal Product of a worker multiplied by the price of the output

Answer 2

Value Marginal Product

Question 3

What are the results of non-labor opportunities, such as are provided by social welfare programs?

Answer 3

The labor supply falls - less employment and higher wages.

Question 4

Suppose, instead, the government places taxes or higher regulations on employers that raise labor costs.

Answer 4

This causes the demand for labor to fall, as seen below. This lowers employment and wages. The law of unintended consequences often applies to these situations.

Question 5

Education and training may improve productivity, building the individual’s….

Answer 5

human capital, raising the demand for the individual’s labor.

Question 6

education and training may be valuable to the individual, not because the training increases productivity, but because it points out which employees will be good

Answer 6

Screening theory

Question 7

The idea that jobs have value, regardless of whether the labor actually creates value, is called…

Answer 7

make work fallacy

Question 8

In the skilled labor market below, the equilibrium wage is $15/hour. If the state requires that no employee be paid less than $20/hour, (that is, imposes a minimum wage) more potential employees will begin looking for jobs (the quantity supplied would rise to 700,000), but employers would not offer as many jobs at the higher wage (only 400,000).

Answer 8

This would cause unemployment that the workings of supply and demand would not cure. A minimum wage of $20/hour in a market for unskilled labor, where wages are much lower, would have drastic consequences.

Question 9

The Bureau of Labor Statistics asks large businesses about how many employees are on their payroll, to measure the number of jobs the economy is creating…

Answer 9

establishment survey; However, the establishment survey omits all self-employed persons or contractors, who do not appear on the company’s payroll, but only as an operating expense.

Question 10

This asks individuals about their employment status by telephone. From this, the BLS staff compiles the unemployment rate and other statistics…

Answer 10

household survey

Question 11

Members of the population 16 years or older, not in the military, and not institutionalized. The reason that the military is omitted is that otherwise wartime makes the unemployment rate fall, making it look as if the labor market is doing well. About 248.5 million.

Answer 11

Civilian Non-Institutional Population (CNIP)

Question 12

Everyone who worked at least 1 hour for pay or pro t in the previous week. Everyone who was not paid for working in a family business, but worked at least 15 hours at that business in the previous week. Everyone who missed regular work due to illness, vacation, strike, etc. About 146.6 million.

Answer 12

Employed (E)

Question 13

Everyone who was not employed, but made speci c, active efforts to nd a job in the previous four weeks. Everyone who was waiting to be called back from a layoff. About 9.3 million.

Answer 13

Unemployed (U)

Question 14

Employed + Unemployed. About 155.8 million.

Answer 14

Civilian Labor Force (LF)

Question 15

the unemployed, divided by the civilian labor force.

Answer 15

The unemployment rate; Any unemployment rate over 5.5% is considered high. The highest unemployment rates since The Great Depression are around 10-11%, so we have seen worse.

Question 16

the LF divided by the CNIP. It measures how many people are interested in holding a job.

Answer 16

The Labor Force Participation Rate; A falling LFPR reveals an economic/societal problem that the recent recession and sluggish recovery has accelerated.

Question 17

those who have looked for a job at some time during the previous 12 months,
but are no longer looking because they think no jobs are available.

Answer 17

Discouraged workers

Question 18

A special unemployment rate known as U-6 includes people who have stopped looking for jobs and those who are part time, but want to be full time.

Answer 18

U-6 was 12.3% in May 2014, while the quoted unemployment rate was 6.3%

Question 19

New claims for unemployment insurance

Answer 19

are compiled by the states and collected by the Department

of Labor on a weekly basis.

Question 20

politicians who wanted to seem compassionate extended the duration of unemployment bene ts above the usual 26 week limit (half a year)—up to 99 weeks (two years) during the 2008-2009 recession/recovery.

Answer 20

This further prevented the strong recovery one would see by encouraging some of the unemployed—those who, for instance, live with parents—to delay re-entering the labor force until their bene ts expire.

Question 21

unemployment occurs because of the normal workings of the labor force with people changing jobs and entering the labor force with the skills that will likely soon yield a job

Answer 21

Frictional unemployment

Question 22

unemployment is a longer term problem which occurs due to changes in the labor force that render some skills obsolete. It may be due to changes in technology, to trade, or to changes in consumer tastes.

Answer 22

Structural unemployment

Question 23

unemployment is what we usually think of as unemployment—it arises due to contractions that occur during the business cycle.

Answer 23

Cyclical unemployment

Question 24

said to exist when there is no cyclical unemployment. This means that a fully employed economy has some frictional and structural unemployment. The logic behind this is that healthy economies have frictional and structural unemployment, so we should not “count them against” the economy. Frictional unemployment is natural and is not problematic. In addition, an economy with no structural unemployment would not be growing and changing.

Answer 24

Full employment