Chapter 8: Unemployment

Question 1

Labor Force

Answer 1

Employed + Unemployed

Question 2

Discouraged Workers

Answer 2

People that want a job but are too discouraged to seek unemployment. Excluded from the Unemployment Rate

Question 3

Unemployed

Answer 3

Out of work, and actively looking for a job

Question 4

Employed

Answer 4

Currently working for pay

Question 5

Out of the Labor Force

Answer 5

Out of paid work, but not actively looking for a job

Question 6

Underemployment

Answer 6

A person not having enough work, or not doing work that makes full use of their skills and abilities

Question 7

Hidden Unemployed

Answer 7

Workers not employed or not fully employed, that are excluded from the official Unemployment Rate. Includes the underemployed, and discouraged workers.

Question 8

Unemployment Rate (calculation)

Answer 8

(Unemployed People) / (Total Labor Force) x 100%

Question 9

Labor Force Participation Rate

calculation

Answer 9

(Labor Force) / (Total Adult Population) x 100%

Question 10

Percentage out of Labor Force

calculation

Answer 10

(People out of Labor Force) / (Total Adult Population) x 100%

Question 11

CPS / Current Population Survey

Answer 11

Measures % of labor force that is unemployed

Question 12

EPS / Establishment Payroll Survey

Answer 12

Payroll survey that measures net change in jobs created for the month

Question 13

What was the unemployment rate during the Great Depression of the 1930s?

Answer 13

25%

Question 14

What was the unemployment rate during the recession of 2007-2009?

Answer 14

10%

Question 15

Why do the elderly have extremely low rates of unemployment?

Answer 15

Those who do not have a job often exit the labor force by retiring

Question 16

Which racial group tends to have the highest unemployment rate?

Answer 16

African Americans / Blacks

Question 17

What is an indirect reason that those with less education tend to have higher unemployment rates?

Answer 17

Education offers social networking connections to the labor market

Question 18

Cyclical Unemployment

Answer 18

Unemployment variation caused by the typical business cycle between recession and expansion

Question 19

Sticky-Downward Wages

Answer 19

Wages easily move up, not down

Question 20

Implicit Contract

between employers/employees

Answer 20

Form of insurance. Employer will try to keep wages from falling when business is struggling, and employee will not expect huge salary increases when business is strong.

Question 21

Efficiency Wage Theory

Answer 21

Worth it for employers to pay above market conditions. Increases employee productivity, and saves employer from the cost of retraining

Question 22

Adverse Selection of Wage Cuts Argument

Answer 22

Employer that reduces wages for all workers across the board will lose the best workers, so better to chose who departs through layoffs and firings

Question 23

Insider-Outsider Model

Answer 23

Those already working for firms are “insiders” while new employees are “outsiders”. A firm depends on its insiders, but cutting their wages will alienate them

Question 24

Relative Wage Coordination Argument

Answer 24

Workers fight hard against wage cuts, as there is no decentralized way to ensure all workers receives an equal decline of wages in hard times, even if they were hypothetically open to this

Question 25

Federal Reserve

Answer 25

Central Bank of the United States

nicknamed the Fed

Question 26

Natural Rate of Unemployment

Answer 26

Unemployment that occurs when the economy is healthy. Occurs due to frictional and structural unemployment.

Question 27

Frictional Unemployment

Answer 27

“Natural” unemployment that occurs as workers move between jobs. Not a negative thing.

Question 28

Structural Unemployment

Answer 28

Occurs for individuals that have no jobs because they lack skills valued by the labor market, due to not learning skills or a shift in market demand

Question 29

When is the economy considered to be at full employment?

Answer 29

When actual unemployment rate = natural unemployment rate

Question 30

When was the US unemployment insurance program implemented?

Answer 30

1935

Question 31

Who runs the Unemployment Insurance program?

Answer 31

It is a joint federal-state program
Established by federal law, which sets minimum standards
States do most administration, and pays benefits

Question 32

Why does the European unemployment rate tend to be higher than the US?

Answer 32

1. Generous welfare system in Europe

2. More red tape around hiring and firing in Europe