Unemployment in Macroeconomic Theory

These flashcards cover key vocabulary terms and concepts related to unemployment as discussed in the Intermediate Macroeconomic Theory lecture.

Natural rate of unemployment

The average rate of unemployment around which the economy fluctuates.

Structural unemployment

Unemployment that arises due to wage rigidity, leading to job rationing where not enough jobs are available for everyone at a specific wage.

Wage rigidity

A situation where real wages are not flexible and may remain above the market-clearing level, causing unemployment.

Frictional unemployment

Unemployment that results from the time it takes for workers to search for a job, occurring even when wages are flexible.

Sectoral shifts

Changes in the composition of demand among industries or regions, which can lead to frictional unemployment.

Unemployment insurance (UI)

A government program that pays part of a worker's former wages for a limited time after losing a job.

Marginally attached workers

Persons not in the labor force who want and are available for work but have not recently looked for work.

Discouraged workers

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

Job rationing

A mismatch between the number of job seekers and available jobs, often due to wage rigidity.

Efficiency wages

Wages that are set above the equilibrium level to increase worker productivity and reduce turnover.

Minimum-wage laws

Legislation designed to ensure a minimum hourly pay for workers, which can lead to unemployment if set above equilibrium wage.

Collective bargaining

Negotiation between unions and employers to determine wages and working conditions, which can create wage rigidity.

U-3 unemployment rate

The official unemployment rate that measures total unemployed as a percent of the labor force.

U-6 unemployment rate

A broader measure of unemployment that includes total unemployed, marginally attached workers, and those working part-time for economic reasons.

Job separations

The process in which employed workers lose or leave their jobs, impacting overall unemployment rates.

Long-term unemployment

Unemployment lasting 27 weeks or more, often resulting from economic recessions.

Labor market equilibrium

A state in which the quantity of labor supplied equals the quantity of labor demanded.

Efficiency in job matching (μ)

A measure of how effectively workers are matched with job vacancies.

Economic conditions affecting UI benefits

Factors such as recession that can lead to the expansion or extension of unemployment insurance benefits.

Wage setting behavior of unions

How unions determine wages that can lead to higher wages than the market equilibrium, resulting in unemployment.