Chapter 9 - Unemployment And Natural Rate

Question 1

What is the economy’s natural rate of unemployment

Answer 1

The amount of unemployment the economy normally experiences. The rate of unemployment to which the economy tends to return to in the long run

Question 2

What is cyclical unemployment

Answer 2

deviation of unemployment from its natural rate, which explains why the observed unemployment rate differs from the natural rate

Question 3

Everyone is put into 3 categories

Answer 3

1. Employed - if they spent some of the previous week working at a paid job
2. Unemployed - are actively looking for a job - if on temporary layoff or looking for a job
3. Not in the labour force - rested, full-time student not wanting to work, anyone not looking for a job, stay-at-home parent…

Question 4

What’s the labour force

Answer 4

Total number of workers, including employed and unemployed
LF = no. Of employed + no. Of unemployed

Question 5

Unemployment rate

Answer 5

Percentage of the labour force that is unemployed
U = no. Of unemployed / LF x 100

Question 6

Labour force participation rate

Answer 6

Percentage of the adult population that is in the labour force
LFPR = LF/ adult population x 100

Question 7

Things that make unemployment difficult to measure

Answer 7

Unemployed people who are not trying hard to find a job, people calling themselves unemployed to get unemployment insurance, people who are officially unemployed but working “under the table”

Question 8

What are discouraged searchers

Answer 8

Individuals who would like to work but have given up on looking for a job

Question 9

3 types of unemployment

Answer 9

1. Frictional unemployment - results because it takes time for workers to search for the job that best suits their tastes and skills. Often explains short spells of unemployment
2. Structural unemployment - results bc the number of jobs available in a market is insufficient to provide a job for everyone who wants one; the market messed up. Happens when wages are set above equilibrium (creates surplus or shortage)
3. Cyclical unemployment - due to economic downturns, part of business cycle

Question 10

2 government programs that help facilitate job search

Answer 10

• govt run agencies that give out info about job vacancies
• public training programs, ease transition of workers from declining to growing industries and to help disadvantaged groups

Question 11

Employment insurance

Answer 11

Govt program that partially protects workers’ incomes when they become unemployed

Question 12

Efficiency wages, and reasons why firms may pay more than wage rate

Answer 12

Above-equilibrium wages paid by firms in order to increase worker productivity, cause unemployment in the long run)
- worker health, worker turnover, worker effort, worker quality