chapter 7 Flashcards
what is the natural rate of unemployment?
the average rate of unemployment around which the economy fluctuates
what does “L” denote?
size of the labour force
what does “E” denote?
number of employed workers
what does “U” denote?
number of unemployed workers
what makes up the labor force?
employed workers + unemployed workers
L=E+U
what does “U/L” denote?
the unemployment rate
what is the flow to unemployment (SE)?
the group of employed workers who become unemployed in a given month
what is the flow to employment (FU)?
the group of unemployed workers who become employed in a given month
what is the separation rate (S)?
the fraction/ percentage of employed workers that lose their job each month
what is the finding rate?
the fraction/ percentage of unemployed workers that find a job
what is the steady state equilibrium?
when the total number of employed workers that become unemployed = the total number of unemployed workers that become employed
SE=FU
what is the assumption with the steady state equilibrium?
the size of the labor force is not changing
what is the formula for the unemployment rate (U/L)?
S/ S+F
will online job sites impact the finding rate (F) or the separation rate (S), and how will that impact the unemployment rate?
it will increase the finding rate, this will cause the unemployment rate to decrease
will a generous employment insurance policy impact the finding rate (F) or the separation rate(S), and how will that impact the unemployment rate?
it will decrease the finding rate, this will cause the unemployment rate to increase
what is the unemployment rate? if
F= 0.2
S= 0.05
0.05/ 0.2+0.05
0.05/0.25
unemployment rate (U/L)= 0.2 or 20%
if
F=0.2
S=0.05
L=100
what is
U/L
U
E
SE
FU
U/L= 0.05/0.2+0.05
U/L=0.2
U=0.2(L)
U=0.2(100)
U=20
E=L-U
E=100-20
E=80
SE= S X E
SE= 0.05 X 80
SE= 4
FU= F X E
FU= 0.2 X 20
FU=4
when the finding rate increases, how does that impact the unemployment rate?
it decreases the unemployment rate
when the separation rate increases, how does that impact the unemployment rate?
it increases the unemployment rate
what is the unemployment rate in a steady state?
fU=sE
how will jobs becoming more stable impact the separation rate?
it will lower the separation rate
what is the unemployment rate if,
s = 0.01
f=0.2
U/L= 0.01/(0.01+0.2)
U/L=0.0476 (4.76%)
what are the 2 things the unemployment rate in a steady state rely on?
seperation rate (s)
finding rate (f)
what can cause a change in the unemployment rate in a steady state?
policies that affect either separation rate or finding rate will change steady-state rate of unemployment
what is frictional unemployment?
unemployment caused by the time it takes workers to search for jobs
what is a sectoral shift?
a change in consumption of demand for labour among industries or regions
is frictional unemployment unavoidable?
due to sectoral shifts, failure of businesses frictional unemployment is unavoidable
how will a policy that increases the finding rate impact the natural rate of unemployment?
it will decrease the natural unemployment rate
what is employment insurance?
allows unemployed workers to receive a fraction of wage for a certain period after job separation
what are the 2 reasons that employment insurance may increase the natural rate of unemployment?
1) while receiving benefits, workers are less likely to accept unattractive job offers
2) workers are more likely to accept seasonal temporary jobs, then rely on employment insurance
what are the 2 factors that offset the negative effects of employment insurance?
better job matches- workers less likely to quit
reduced uncertainty about income
is employment insurance experience rated?
no it is not
what is experience rated employment insurance?
firms contributions into plan are adjusted for unemployment experience of own workers, they need to pay in to EI based on how much their workers use it
why would an experience rated employment insurance help frictional unemployment?
experience rated EI would deter firms from using EI as an insensate to layoff own workers during business lulls
