Chapter 11: Unemployment & Labor Force Participation

Question 1

What are unemployed workers?

Answer 1

Adults who do not have a job but who are looking for work

Question 2

To be counted as unemployed, a person must be:

Answer 2

1. 16 years or older
2. Not in prison
3. A civilian
4. Looking for work

Question 3

What is the labor force?

Answer 3

All workers who are employed and unemployed

Question 4

What is the labor force participation rate?

Answer 4

the percentage of adults in the labor force who are working or actively looking for work

Question 5

How do we calculate the unemployment rate?

Answer 5

(unemployed/labor force)*100

Question 6

How do we calculate the Labor Force Participation Rate?

Answer 6

(Labor force/adult population)*100

Question 7

What is the labor force participation rate determined by?

Answer 7

1. Lifecycle effects and demographics

2. Incentives

Question 8

LFPR is positively related to _____.

Answer 8

real income

Question 9

LFPR is negatively related to _______.

Answer 9

income tax rates and non worker benefits

Question 10

What are discouraged workers?

Answer 10

Workers who have given up looking for work but would still like a job

Question 11

Are discouraged workers included in the labor force?

Answer 11

No

Question 12

What does it mean to be underemployed?

Answer 12

Individuals have skills but work in low or no-skilled jobs;

Also part time workers that want to be full time

Question 13

From an individual’s perspective what can unemployment lead to?

Answer 13

1. Higher rates of stress
2. Higher rates of suicide
3. Lower rates of measure happiness

Question 14

From a macroeconomics perspective, what does unemployment indicate about the economy?

Answer 14

That the economy is underperforming

Question 15

What is frictional unemployment?

Answer 15

Short term unemployment caused by the ordinary difficulties of matching employe to employer

Question 16

Frictional unemployment is never caused by a scarcity of information.

True or False

Answer 16

False

Question 17

What is “creative destruction?”

Answer 17

Innovation and competition dives progress, creating new jobs and destroying old ones

Question 18

What is structural unemployment?

Answer 18

Persistent long term unemployment caused by long lasing shocks or permanent features of an economy that make it more difficult for some workers to find jobs

Question 19

Why do employers take long unemployment spells as a negative signal?

Answer 19

They attribute it to laziness or a lack of motivation in the worker to find a job

Question 20

The longer a worker remeains unemployed, the longer their skills atrophy.

True or False?

Answer 20

True

Question 21

What are two factors that affect structural unemployment?

Answer 21

1. Large, long-lasting shocks that require the economy to restructure.
2. Labor regulations.
   Including unemployment benefits, minimum
   wages, powerful unions, and employment
   protection laws.

Question 22

Unemployment insurance is a form of_______.

Answer 22

Unemployment benefits

Question 23

What effect do unemployment benefits have on workers?

Answer 23

It reduces the incentives for workers to search for and take new jobs

Question 24

What is the price floor for the labor market known as?

Answer 24

Minimum wage

Question 25

What is the median wage?

Answer 25

The wage such that half of all workers earn wages below that amount and half earn above it

Question 26

What is a union?

Answer 26

An association of workers that bargains collectively with employers over wages, benefits, and working conditions

Question 27

What is the employment at will doctrine?

Answer 27

The policy that an employee may quit and an employer may fire an employee at any time and for any reason

Question 28

What effect do employment protection laws have on employees?

Answer 28

1. Serves as insurance for workers with full time jobs
2. Makes labor markets less flexible
3. Increases duration of unemployment
4. Increases unemployment rates among young “risky” workers

Question 29

What is the “rigidity of employment index?”

Answer 29

It summarizes hiring and firing costs as well as how easy it is for firms to adjust hours of work

Question 30

What does a higher index number mean on the rigidity of employment index?

Answer 30

It is more expensive to hire and fire workers and more difficult to adjust hours

Question 31

What are active labor market policies?

Answer 31

Policies that focus on getting unemployed workers back to work, such as job search assistance, job retraining programs and work tests

Question 32

What are work tests?

Answer 32

Tests to prove that you are actively searching for work

Question 33

What is cyclical unemployment?

Answer 33

Unemployment that is correlated with the business cycle

Question 34

For what 2 reasons does unemployment increase dramatically during a recession?

Answer 34

1. When GDP falls, firms lay off employees

2. When workers are idle, the economy is not maximizing growth

Question 35

What is the natural unemployment rate?

Answer 35

The rate of structural plus frictional unemployment

Question 36

Who are the baby boomers?

Answer 36

People born during the high birth rate years of 1946-1964