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Chapter 23: Problem 7

How will the following changes affect the natural rate of unemployment? a. The government reduces the time during which an unemployed worker can receive unemployment benefits. b. More teenagers focus on their studies and do not look for jobs until after college. c. Greater access to the internet leads both potential employers and potential employees to use the internet to list and find jobs. d. Union membership declines.

Short Answer

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Answer: (a) A reduction in unemployment benefits can decrease the natural rate of unemployment, as it incentivizes unemployed workers to find jobs faster. (b) More teenagers focusing on studies can also decrease the natural rate of unemployment, as it reduces the number of job-seekers and increases the share of employed people. (c) Increased internet usage can lead to greater efficiency in job matching, resulting in decreased unemployment rates. (d) A decline in union membership can decrease the natural rate of unemployment, as it leads to more flexible wages and competitive labor markets.

Step by step solution

01

Part a: Reduction in unemployment benefits

When the government reduces the time during which an unemployed worker can receive unemployment benefits, it might lead to a decrease in the natural rate of unemployment. The reason behind this is that the reduction in unemployment benefits can act as an incentive for unemployed workers to find jobs more quickly, as they no longer have the financial support for an extended period. With more people actively seeking work and finding jobs faster, the natural rate of unemployment may decrease.
02

Part b: More teenagers focusing on studies

When more teenagers focus on their studies and do not look for jobs until after college, it can lead to a decrease in the natural rate of unemployment. The reason is that these students are now removed from the labor market, reducing the number of job-seekers, and increasing the share of employed people. This could result in a drop in the unemployment rate, which in turn lowers the natural rate of unemployment.
03

Part c: Greater access to the internet

Increased access to the internet leading to both employers and job seekers finding jobs and candidates more efficiently can result in a decrease in the natural rate of unemployment. Online job platforms make it easier for employers to find suitable candidates, as well as make it easier for job seekers to find job openings. The improved efficiency can shorten the time that workers are unemployed, and therefore, reduce the natural rate of unemployment.
04

Part d: Decline in union membership

A decline in union membership might lead to a decrease in the natural rate of unemployment. Unions often bargain for higher wages and benefits, which can result in higher unemployment rates as employers are less likely to hire new workers at higher costs. When union membership declines, wages may become more flexible, and labor markets can become more competitive. This can lead to a reduction in the natural rate of unemployment, as companies are more willing to hire workers at competitive wages.

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Most popular questions from this chapter

In which of the following cases is it more likely for efficiency wages to exist? Why? a. Jane and her boss work as a team selling ice cream. b. Jane sells ice cream without any direct supervision by her boss. C. Jane speaks Korean and sells ice cream in a neighborhood in which Korean is the primary language. It is difficult to find another worker who speaks Korean.

Each month, usually on the first Friday of the month, the Bureau of Labor Statistics releases the Employment Situation Summary for the previous month. Go to www.bls.gov and find the latest report, On the Bureau of Labor Statistics home page, at the top of the page, select the "Subjects" tab, find "Unemployment," and select "National Unemployment Rate." You will find the Employment Situation Summary under "CPS News Releases" on the left-hand side of the page. How does the current unemployment rate compare to the rate one month earlier? How does the current unemployment rate compare to the rate one year earlier?

In each of the following situations, what type of unemployment is Melanie facing? a. After completing a complex programming project, Melanie is laid off. Her prospects for a new job requiring similar skills are good, and she has signed up with a programmer placement service. She has passed up offers for low- paying jobs. b. When Melanie and her co-workers refused to accept pay cuts, her employer outsourced their programming tasks to workers in another country. This phenomenon is occurring throughout the programming industry. c. Due to the current slump, Melanie has been laid off from her programming job. Her employer promises to rehire her when business picks up.

In general, how do changes in the unemployment rate vary with changes in real GDP? After several quarters of a severe recession, explain why we might observe a decrease in the official unemployment rate. Explain why we could see an increase in the official unemployment rate after several quarters of a strong expansion.
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