Deck 18: Employment and Unemployment

Question 1

Do you expect the natural rate of unemployment to (a) increase, (b) decrease, or (c) remain at the present level over the next decade Explain your reasoning.

Answer 1

The natural rate of unemployment is mostly going to remain at the present level say for a few more years to come or maybe a decade.
This can be concluded by observing the distribution of unemployment, which is uneven over the labor force and changes as the demand deficient unemployment rises and falls. While studying the distribution of unemployment along lines of race, age, gender, and duration of unemployment it is observed that a rising as well as a falling trend in the rate of unemployment but to an extent this rate has been undisturbed.
The following points can be stated as an explanation for the above stated observation:
1. The unemployment rates for people in occupations requiring less human capital is higher than in jobs that require skill. This trend has been observed both when the economy faced full employment and when recession. During such time the skilled workers are mostly self-employed and firms lay off workers with low skills instead of workers who are given special training.
2. The unemployment rate of the teenagers is more than the adults. Further, the rate of unemployment is more of African teenagers than the white
3. Another general observation over the years has been that the unemployment rate of African-American whether a teenager or adult is twice more than the whites.
4. Another observation is that the female unemployment rate is almost equal to that of the males, this trend has been observed for over a decade as women have moved to career oriented positions.
5. Another observation is that the number of people unemployed for a long period as a percentage of the labor force is very less compared to the overall employment.
The economists have been observing this trend of the economy for longer and hence the above generalizations. Thus, the trend of the unemployment rate is not going to vary during the coming decade as all the factors put together only a slight jump or downward movement can only be observed.

Question 2

Examine critically this statement: "Unemployment in the United States can be resolved quickly and efficiently. The government should simply provide jobs for everyone who wants to work who cannot find suitable employment in the private sector."

Answer 2

Unemployment can be resolved by the U.S government by providing job opportunities to the people who cannot find suitable jobs in the private sector. The government has been trying to improve this situation of unemployment by framing, various fiscal and monetary policies. Timely implementation of these policies can make the economy eradicate the problems of cyclical unemployment.
A lag in the implementation of these policies can make the factors independent of fiscal and monetary policies to bring down a further shift in the aggregate demand curve.
There has to be a careful coordination of the fiscal as well as the monetary policy as when one tends to control and plan the government expenditure the other tends to check the money supply. If the fiscal policy control investment, lack of money supply on the other hand will force the private investors to withdraw there by again reduce labor demand as well as aggregate demand, also termed as the crowding out effect.
Another area where the government has to be careful while making policies is inflation. Factors affecting the demand and supply should not push the prices as well as the costs high enough to let way to situation of inflation.
Thus, it becomes important that the government should frame policies in such a way that the people get more employment opportunities.

Question 3

Use the following data to calculate (a) the size of the labor force, (b) the official unemployment rate, and (c) the labor force participation rate (Chapter 3) for a hypothetical economy: population = 500; population 16 years or older and non- institutionalized = 400; people employed full- or part-time = 200; people unemployed and actively seeking work = 20; people who have quit seeking work due to lack of success = 10; part-time workers seeking full-time jobs = 30.

Answer 3

a. Labor force:  220
b. Unemployment rate:  20/220 = 9.09%
c. Labor force participation rate:  220/440 = 55%

Question 4

Assume that the official national unemployment rate rises from 4 percent to 8 percent because of a major recession. What impact do you predict this would have on (a) the African-American to white unemployment rate ratio, (b) the labor force participation rate, and (c) the teenage-adult unemployment rate ratio Explain.

Question 5

Use the following data to calculate (a) the size of the labor force, (b) the official unemployment rate, and (c) the labor force participation rate (Chapter 3) for a hypothetical economy: population = 500; population 16 years or older and noninstitutionalized = 400; people employed full- or part-time = 200; people unemployed and actively seeking work = 20; people who have quit seeking work due to lack of success = 10; part-time workers seeking full-time jobs = 30.

Question 6

What factors tend to understate the extent to which the official unemployment rate accurately measures the degree of economic hardship in the nation What factors lead some observers to conclude that the official unemployment rate overstates economic hardship

Question 7

Use the basic model shown in Figure 18.5 to illustrate graphically each of the following: (a) demand-deficient unemployment and (b) temporary increases in output and employment beyond their natural, or full-employment, levels.

Question 8

Define the term structural unemployment and distinguish it from frictional and demand-deficient unemployment. Why might structural unemployment fall when demand-deficient unemployment declines

Question 9

Suppose you are an economic adviser to the president, who has asked you to design a program to reduce the amount of unemployment associated with displaced workers. What major elements would your plan include

Question 10

Why are nominal wages inflexible downward What is the implication of this characteristic for the ability of involuntary demand-deficient unemployment to persist for a considerable length of time

Question 11

Assume that the official national unemployment rate rises from 4 percent to 8 percent because of a major recession. What impact do you predict this would have on (a) the African-American to white unemployment rate ratio, (b) the labor force participation rate, and (c) the teenage-adult unemployment rate ratio Explain.