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Chapter 21: Q 22. (page 524)

What term describes the remaining level of unemployment that occurs even when the economy is healthy?

Short Answer

Expert verified

The natural level of unemployment describes this situation.

Step by step solution

01

Step 1. Definition

Frictional unemployment is the period when a worker is chosen to leave their job in search of the new one and the workers join the workforce for the first time.

Structural unemployment is a type of involuntary unemployment which is caused due to the mismatch between the workers and skills required and this is also called the skill gap.

02

Step 2. Explanation

When the economy is healthy and doing well the remaining level of unemployment is described by the natural level of unemployment.

03

Step 3. Natural rate of employment

The labor market is incomplete equilibrium when there is a natural level of unemployment and this occurs because of frictional and structural unemployment.

Even the fully developed economies also have a natural rate of unemployment because in an economy the workers may come and go and always look for a better job, the period in which the workers are looking for a job is called the natural level of unemployment.

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Most popular questions from this chapter

If you are out of school but working part-time, are you considered employed or unemployed in U.S. labor statistics? If you are a full-time student and working 12 hours a week at the college cafeteria are you considered employed or not in the labor force? If you are a senior citizen who is collecting social security and a pension and working as a greeter at Wal-Mart are you considered employed or not in the labor force?

A country with a population of eight million adults has five million employed, 500,000 unemployed, and the rest of the adult population is out of the labor force. What’s the unemployment rate? What share of the population is in the labor force? Sketch a pie chart that divides the adult population into these three groups.

Unemployment rates have been higher in many European countries in recent decades than in the United States. Is the main reason for this long-term difference in unemployment rates more likely to be cyclical unemployment or the natural rate of unemployment? Explain briefly.

Why is there unemployment in a labor market with

flexible wages?

While unemployment is highly negatively correlated with the level of economic activity, in the real world it responds with a lag. In other words, firms do not immediately lay off workers in response to a sales decline. They wait a while before responding. Similarly, firms do not immediately hire workers when sales pick up. What do you think accounts for the lag in response time?
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