ECON 209 Test 2

Frictional Unemployment

Caused by time it takes workers to search for jobs

Reasons for frictional Unemployment

• Different worker abilities and Preferences

• Jobs have diff skill requirements

• Non-instantaneous geographic mobility

• Imperfect flow of info abt vacancies and job candidates

Sectoral Shifts

Changes in the composition of demand among industries or regions

Govt employment agencies

Disseminate info about job openings to better match workers and jobs

Public job training programs

Help workers displaced from declining industries get the skills needed for jobs in growing industries

Unemployment Insurance

• Pays part of a worker’s former wages for a limited time after the worker loses their job

Consquences of Unemployment Insurance

• Increases frictional unemployment

  • Reduces the opportunity cost of being unemployed

  • Reduces the urgency of finding work

Benefits of UI

Better matches between jobs and workers ==> Greater productivity and higher incomes

Structural Unemployment

Unemployment resulting from real wage rigidity and job rationing

Reasons for wage rigidity

• Minimum Wage Laws

• Labor Unions

• Efficiency Wages

Efficiency Wages

Theory in which higher wages increase worker productivity

s = rate of job seperation

Fraction of employed workers who become seperated from their jobs

Discouraged Workers

Workers who have given up on looking for a job and are considered out of the labor force

Marginally attached workers

People not in the labor force who want and are available for work. Looked for a job but have not reently looked for work. (Discourage workers included)

Natural Rate of Unemployment

Long run-average / steady state rate of unemployment

Investment and Capital Stock relationship

Positive (Investment Increases capital stock)

Depreciation and Capital Stock relationship

Negative (Investment reduces capital stock)