ECO: The natural rate of unemployment Flashcard Example #48276

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What is the natural rate of unemployment?
The long term perspective and describes the amount of unemployment that the economy normally experiences. It is unemployment accounted for by structural factors around which the actual unemployment rate fluctuates. This does not mean that all people willing to work have a job. The natural rate of unemployment is not desirable, it just means it does not go away in the long run.
What is structural unemployment?
Arises from a skill mismatch: the skills some workers have differ from those employers need. It is longer in duration as it takes time to acquire skills.
What is frictional unemployment?
Occurs when workers are searching for a new job and are temporarily unemployed as a result. Usually shorter in duration.
What is classical unemployment?
The real wage in the labour market is too high for employers to be able to hire all workers willing to work at that wage. Real wage in a labour market is above the market clearing level that equates supply and demand.
What is the labour force?
The total number of workers including both the employed and unemployed (available and actively seeking work). Labour force = number of unemployed + number of employed
What is the unemployment rate?
Percentage of labour force that is unemployed. Calculated by number of unemployed / divided by labour force x 100.
What is labour force participation rate?
The proportion of adult population that is not in the labour force. (Labour force/adult population) x 100
What is cyclical unemployment?
The deviations of unemployment from its natural rate due to the business cycle.
What are discouraged workers?
Individuals who would like to work but have given up looking for a job
Why might the unemployment rate measured overstate and understate the amount of joblessness?
May include people who are not actively seeking or available for a job. It might be understated as some of those who report being out of the labour force may want to work, e.g discouraged workers.
Why are minimum wage laws not a predominant reason for unemployment?
Most workers in the economy earn above minimum wages. They tend to only be binding for the least skilled and least experienced members of the labour force. If wage is kept above the equilibrium level, the result is unemployment. Minimum wage laws are just one reason why wages may be too high, unions and efficiency wages also effect it.
What is a union?
A worker association that bargains with employees over wages and working conditions.
What is collective bargaining?
The process by which firms and unions agree on the terms of employment.
What is a strike?
The organised temporary withdrawal of labour from a firm
How does a union in the car industry affect wages and unemployment for Holden and Ford?
It raises their wages by threatening to strike. To prevent the cost of a strike, the firms generally pay higher wages than they would if there was no union. However, the higher wages reduce these companies employment. The wages and employment of other companies are also affected as unemployed auto workers seek jobs elsewhere, reducing wages and increasing employment.
What is the efficiency wage?
Above equilibrium wages are paid by firms in order to increase worker productivity. They result when supply equals demand. They can potentially explain unemployment as well as earnings.
What are the reasons why a firm might find it profitable to pay wages above the level that balances quantity of labour supplied and quantity of labour demanded?
To ensure workers are in good health so they will be more productive.
To reduce worker turnover because it is costly to hire new workers.
To make workers eager to keep their jobs, thus discouraging them from shirking.
To attract a better pool of workers.
What is job search?
The process by which workers find approporaite jobs given their tastes and skills.
What are unemployment benefits?
A government programme that partially protects workers incomes when they become unemployed.
What are the causes of underemployment?
REcessions – occur when there is a decline in economic activity.
Also caused when the supply of workers greatly outweighs the demand, which leads to lay offs.
What does underemployment effect?
Job growth, poverty levels and business growth.
Why does the level of unemployment differ widely region to region?
Because different regions produce different goods, employment can rise in one region and fall in another
How is employment rate calculated?
Employed/working age population
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