Deck 14: Unemployment

Question 1

An increase in an individual's reservation wage

A) will increase the duration of the individual's unemployment but not affect the expected wage.
B) will increase the individual's expected wage but not affect the duration of unemployment.
C) will not change the individual's duration of unemployment.
D) will increase both the individual's duration of unemployment and expected wage.

Answer 1

D

Question 2

The unemployment rate tells us

A) the percentage of the population that is not working.
B) the percentage of the population that is searching for work.
C) the percentage of the labor force that has been laid off.
D) the percentage of the labor force that is not working.

Answer 2

D

Question 3

A retraining program to teach unemployed auto workers how to program computers would help to reduce ________ unemployment.

A) frictional
B) cyclical
C) seasonal
D) structural

Answer 3

D

Question 4

If the unemployment rate increases,

A) the employment rate must decrease.
B) the employment rate must increase.
C) the employment rate will generally decrease by the same amount.
D) the employment rate may either increase or decrease.

Question 5

A worker who has quit one job to have time to search for a similar position is counted as what type of unemployment?

A) frictional
B) occupational
C) regional
D) cyclical

Question 6

Paying efficiency wages to reduce turnover may be profit-maximizing for companies,but it also contributes to ________ unemployment.

A) frictional
B) regional
C) cyclical
D) structural

Question 7

European policies which make it difficult to dismiss workers and reduce wage flexibility have probably

A) increased the rate of job creation.
B) decreased the unemployment rate.
C) decreased the rate of long-term unemployment.
D) increased the costs of doing business.

Question 8

Most workers who are laid off

A) do not return to work with the same employer.
B) return to work with the same employer.
C) stay unemployed for a relatively short duration (one month or less).
D) drop out of the labor force.

Question 9

The largest source of unemployed workers is ________ and the second largest is ________.

A) job losers; new entrants
B) job losers; reentrants
C) job leavers; new entrants
D) job leavers; reentrants

Question 10

A worker who is laid off because his or her company chooses to move from Wisconsin to North Carolina is counted as ________ unemployment.

A) frictional
B) wait
C) structural
D) cyclical

Question 11

Which of these is NOT an implication of the model of job search?

A) Virtually all individuals will be underemployed.
B) Workers with identical skill levels will generally receive different wages if their reservation wages differ.
C) If the cost of being unemployed falls, a person's reservation wage will fall.
D) Search unemployment is a rational strategy in a world of imperfect information.

Question 12

Experience rating is

A) assigning a higher UI tax to employers who lay off workers frequently.
B) assigning a higher UI tax to employers who have a large number of experienced workers.
C) assigning a higher UI tax to employers who have a large number of inexperienced workers.
D) assigning a higher UI tax to employers who have not been in business for very long because these businesses are likely to fail.

Question 13

Advance notice of lay-offs should help to reduce

A) frictional unemployment.
B) structural unemployment.
C) cyclical unemployment and frictional unemployment.
D) frictional unemployment and structural unemployment.

Question 14

The stock of unemployed workers at any given time consists mostly of

A) people who have short spells of unemployment.
B) people who have long spells of unemployment.
C) people who have been laid off from one employer and become employed by another.
D) people who have searched for jobs, but who have become discouraged.

Question 15

Which of the following does NOT explain why firms and employees may prefer layoffs to wage reductions?

A) Employees may possess firm-specific training.
B) Employees may possess general training.
C) Firms may have implicitly promised a wage path to their employees.
D) Experienced workers may prefer a certain income stream to an uncertain income stream.

Question 16

If unemployment insurance were perfectly experience rated then

A) unemployment would probably rise.
B) unemployment would probably fall.
C) unemployment could either rise or fall.
D) unemployment would be unchanged.

Question 17

The natural rate of unemployment

A) is currently about 4%.
B) must be the same for every demographic group.
C) occurs when job vacancies equal the number of unemployed workers.
D) hit bottom in the 1970s.

Question 18

Wait unemployment is a form of ________ unemployment.

A) structural
B) frictional
C) cyclical
D) structural and cyclical

Question 19

A construction worker who is not working due to a snow storm would be counted as ________ unemployed.

A) frictionally
B) structurally
C) cyclically
D) seasonally

Question 20

A reservation wage is

A) the lowest wage a worker will accept.
B) the lowest wage a company will offer.
C) the highest wage a company will offer.
D) the wage at which a company's profits are maximized.

Question 21

If all employers pay an efficiency wage,then which of the following will increase the unemployment rate,other things the same?

A) It becomes less costly to monitor worker productivity.
B) Due to a mistake, firms reduce their wages.
C) The cost to the firm of workers shirking goes up.
D) Workers put a lower value on shirking.

Question 22

If workers for a firm have mainly general human capital,then when the demand for its output falls,the firm will mainly

A) lower wages.
B) cut back on employment.
C) cut work hours of all workers.
D) increase its specific investment in workers as the opportunity cost of training is low.

Question 23

Unemployment insurance in the United States is structured so that

A) replacement rates are constant.
B) almost all unemployed workers can collect UI benefits.
C) UI benefits are partially linked to previous pay.
D) UI benefits may be collected for one year after the job loss.

Question 24

What is structural unemployment? How does structural unemployment arise on a geographic basis?

Question 25

A researcher observes that more generous unemployment benefits result in a greater duration of unemployment and a great improvement in job matches.This suggests that more generous benefits

A) make job searchers more selective in the jobs they accept.
B) make job searchers increase the intensity of search by searching more openings per period.
C) both A and B
D) neither A nor B

Question 26

In the face of declining demand,unions usually tend to favor laying off workers rather than lowering wages.Which of these factors would not explain why this occurs?

A) Workers with less seniority are laid off first.
B) Union leaders are elected by majority vote.
C) Lay-offs usually only affect a small fraction of the work force.
D) Most union members are willing to lose their jobs rather than accept even a small cut in wages.

Question 27

How is unemployment defined in the United States? How is the number of unemployed counted in the United States? What is the unemployment rate?

Question 28

Theoretically,existence of generous unemployment insurance will

A) reduce the unemployment rate.
B) reduce reservation wages.
C) improve job matches.
D) increase income inequality.

Question 29

What is the reservation wage? How does an individual's reservation wage affect the duration of a spell of unemployment? How does an individual's reservation wage affect the individual's expected wage?

Question 30

What is the replacement rate of unemployment insurance in the United States? Does an increase in the replacement rate of unemployment insurance increase the duration of spells of unemployment? Using search theory,what would the rationale be for increasing the replacement rate or,for that matter,for even having unemployment insurance in the first place?

Question 31

Unemployment tends to go up when aggregate demand falls mainly because

A) when wages fall, workers seek alternative employment.
B) unions renegotiate for lower wages, making it difficult for job searchers to find suitable jobs.
C) wage rates tend to be downward rigid.
D) most human capital is general and not firm-specific.

Question 32

If Ajax Incorporated is a very unstable employer that frequently lays off workers,it will prefer to locate its plants in states

A) with perfect experience rating of unemployment insurance tax rates.
B) with imperfect experience rating such that once its layoffs increase beyond a certain level, it does not have to pay a higher unemployment insurance tax rate.
C) with imperfect experience rating such that once its layoffs fall below a certain level, it pays the same minimum unemployment insurance tax rate.
D) with imperfect experience rating such that above a certain level, the unemployment tax rate increases more than in proportion to layoffs.

Question 33

If all employers pay an efficiency wage and if workers in areas with low unemployment rates can easily find alternative jobs,then one would expect

A) average wages to be directly (positively) related to area unemployment rates.
B) average wages times one minus the unemployment rate to be the same across areas.
C) the duration of unemployment in an area, but not necessarily the rate, to be inversely related to the average wage of the area.
D) average wages will be higher in areas with low unemployment rates.

Question 34

What are the sources of unemployment identified by the U.S.Department of Labor? Give some sense of the relative importance of each category in a non-recession year.

Question 35

If all employers pay an efficiency wage,then

A) more employees would shirk.
B) unemployment would be higher.
C) firms would be better able to monitor their employees productivity.
D) all of the above

Question 36

Suppose that no one enters or leaves the labor force and that the fraction of the unemployed getting a job (in a given period)is 0.10 and the fraction of the employed becoming unemployed is 0.02.What is the approximate unemployment rate when the flows into and out of unemployment are in balance?

A) 9%
B) 10%
C) 17%
D) 22%

Question 37

In reemployment bonus experiments,bonuses to workers who found new jobs quickly

A) increased the average duration of unemployment.
B) decreased the average duration of unemployment.
C) did not change the average duration of unemployment.
D) decreased the number of spells of unemployment.

Question 38

The wage curve

A) shows that, with higher regional rates of unemployment, wages for otherwise comparable workers are higher.
B) is evidence that most national economies have regionally integrated labor markets.
C) may exist because efficiency-wage premiums can be smaller in areas of high unemployment.
D) is evidence that wages are always at equilibrium.

Question 39

Which of the following describes the wage curve?

A) Workers with higher wages are less likely to become unemployed.
B) Regions with higher wages have lower regional unemployment rates.
C) As more workers seek jobs, market wages fall.
D) As regional wages increase, the number of persons seeking jobs goes up.

Question 40

A nation has full employment when

A) wages and prices are stable.
B) unemployment is at its lowest level.
C) unemployment rates are the same across all demographic groups.
D) workers are earning a living wage.

Question 41

Does the unemployment insurance payroll tax encourage layoffs? Why or why not?

Question 42

How does demand-deficient unemployment arise? Use a demand/supply diagram to illustrate your answer.

Question 43

What is the wage curve? What is the efficiency wage explanation of the wage curve?

Question 44

What is the natural rate of unemployment? What factors does the natural rate of unemployment depend on?

Question 45

Suppose that a country has two types of workers-young workers and older workers.Young workers make up 10 percent of the labor force and normally have a group unemployment rate of 15 percent.Older workers comprise the rest of the labor force and normally have a group unemployment rate of 5 percent.What is the country's natural rate of unemployment? If twenty years earlier,the country experienced a baby boom such that the labor force composition of young workers now jumps to 20 percent,what is the country's new natural rate of unemployment? Comment on your calculations.