Deck 15: Jobs and Unemployment

Question 1

If trend growth is zero and if unemployment falls by 3%, by how much would you expect output to rise? (Use Okun's rule of thumb.)

Answer 1

Okun's rule of thumb states that a 1 percentage point change in the unemployment rate will tend to be associated with a 2 percent deviation in output from its trend in the opposite direction.Based on Okun's rule of thumb, if unemployment falls by 3%, you would expect output to rise by 6% relative to its trend.That is, output would be expected to rise by 6%.

Question 2

Explain why truly entrepreneurial people can never be unemployed.

Answer 2

Truly entrepreneurial people will never be employed; they will simply create jobs for themselves.

Question 3

In what sense is the guaranteed jobs program preferable to a minimum wage proposal?

Answer 3

The guaranteed jobs program is better than a minimum wage proposal because the minimum jobs program affects both wages and the nature of jobs available.Because it doesn't set a minimum wage for the market, it provides greater freedom to firms to design a wider variety of work and wage combinations.For example, firms are free to pay lower than the minimum wage of the guaranteed jobs program for jobs that have to have significant learning and advancement benefits that are not offered in the guaranteed jobs proposal.The jobs program sets a minimum job, not a minimum wage.
Short-answer questions

Question 4

Do you agree with the proposition: Eliminating unemployment would be an enormous gain for humankind?

Question 5

What would you expect unemployment insurance to do to the target unemployment rate?

Question 6

What type of unemployment would you expect fiscal policy to be most effective against?

Question 7

Would the guaranteed jobs proposal outlined in the book likely significantly affect the pay of (1) waiters (2) dishwashers, (3) teachers, (4) investment bankers, (5) hotel support staff, (6) student interns?

Question 8

What changes would you suggest to the guaranteed job proposal in the book to make it more politically acceptable? (Note that there are many right answers to this question.The one offered here is one example.)

Question 9

Suppose an economy currently has total output of $7 trillion, trend growth is 3%, and the unemployment rate of 4%.Using Okun's rule of thumb, how would the level of output change if unemployment decreased to 3.5%?

Question 10

What happened to the duration of unemployment during the 2008/09 recession? What is the likely reason?

Question 11

Which framework for thinking about unemployment is correct: the individual responsibility framework or the social responsibility framework?

Question 12

If the guaranteed jobs program outlined in the book were implemented, would any firm pay a wage below the guaranteed job wage? Why might it do so?

Question 13

Should the unemployment rate be considered a normative or positive concept?

Question 14

What would you expect to happen to potential output as reservation wages fall? Why?

Question 15

What role has globalization played in increasing the target unemployment rate? What other factors have affected the target rate?