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Chapter 20: Problem 1

What effect does the payment of government unemployment insurance have on the unemployment rate? On the severity of recessions?

Short Answer

Expert verified
The payment of government unemployment insurance can possibly increase the unemployment rate by reducing the incentive for rapid job search. Still, it helps ensure financial stability for the unemployed, allowing a better match of skills and jobs beneficial to long-term economic growth. During recessions, it can act as an automatic stabilizer helping to maintain consumer spending levels and preventing the deepening of the recession.

Step by step solution

01

Understanding Key Terms

Government unemployment insurance refers to the government program that provides monetary assistance to people who have lost their jobs through no fault of their own until they find another job. The unemployment rate refers to the percentage of the unemployed in the total labor force. Recession refers to a significant decline in general economic activity lasting longer than a few months.
02

Effects of Government Unemployment Insurance

The payment of government unemployment insurance can have different effects on the unemployment rate. On one hand, it might increase the unemployment rate by reducing the incentive for the unemployed to find new jobs quickly. However, it also provides support for unemployed individuals to balance their financial stability, enabling them to spend time looking for a job suited to their skill set. This strategy can be beneficial to the overall economy in the long run. A better matching of skills and jobs can lead to improved productivity and economic growth.
03

Unemployment Insurance and Recession Severity

Regarding the severity of recessions, government unemployment insurance can act as an automatic stabilizer. During a recession, unemployment rates rise, and more people receive unemployment insurance. This can help maintain consumer spending levels, preventing further steep declines in economic activity. In other words, it cushions against the effect of an economic downturn.

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Most popular questions from this chapter

Discuss the likely effect of each of the following on the unemployment rate. a. The length of time workers are eligible to receive unemployment insurance payments doubles. b. The minimum wage is abolished. c. Most U.S. workers join labor unions. d. More companies make information about job openings easily available on Internet job sites.

What problems does deflation cause?

What is the difference between the household survey and the establishment survey? Which survey do many economists prefer for measuring changes in employment? Why?

Discuss the effect of each of the following on the unemployment rate. a. The federal minimum wage law b. Labor unions c. Efficiency wages

What is the relationship between frictional unemployment and job search?
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