Module 13 Flashcards
Job search
When workers spend time looking for a job rather than just taking the first job they see
Frictional unemployment
Unemployment due to time spent in job search
Usually shorter time out of work
Why is frictional unemployment inevitable?
Job creation and destruction
New workers entering job market
Structural unemployment
More people seeking jobs in a particular market than jobs available at the current wage rate
Causes of frictional unemployment
1) minimum wage
2) labor unions
3) efficiency wages
4) government giving benefits to help laid off workers
Efficiency wages
Wages employers set above the equilibrium wage as an incentive for better employee performance
Natural rate of unemployment
Frictional plus structural
Cyclical unemployment
Deviation of actual employment from natural rate due to business cycle
Actual employment equation
Frictional + structural + cyclical
Causes of change in natural rate of unemployment
1) changes in labor force characteristics
2) changes in labor market institutions
3) changes in govt policy
How do labor force characteristics change natural rate of unemployment
Unemployment rate lower for experienced workers
New inexperienced workers ➡️ higher unemployment
What labor market institutions change natural rate of unemployment?
Labor unions
Temporary employment agencies
Job search agencies
Increases technology
What govt policies change natural rate of unemployment?
Minimum wage
Generous unemployment benefits
Job training
Employment subsidies
