Deck 7: Unemployment and the Labour Market

Question 1

If s is the rate of job separation, f is the rate of job finding, and both rates are constant, then the steady state unemployment rate is approximately:

A)f / (f + s).
B)(f + s) /f.
C)s / (s + f).
D)(s + f) / s.

Answer 1

s / (s + f).

Question 2

A policy that increases the job-finding rate _____ the natural rate of unemployment.

A)will increase
B)will decrease
C)will not change
D)could either increase or decrease

Answer 2

will decrease

Question 3

Which of the following is an example of frictional unemployment?

A)Dave searches for a new job after voluntarily moving to San Diego.
B)Elaine is willing to work for less than the minimum wage, but employers cannot hire her for less than the minimum wage.
C)Bill is qualified and would like to be an airline pilot, but airlines do not find it profitable to hire him at the wage established by the airline pilots' union.
D)Joan is willing to work for less than the going wage, but there are no jobs available.

Answer 3

Dave searches for a new job after voluntarily moving to San Diego.

Question 4

Frictional unemployment is unemployment caused by:

A)wage rigidity.
B)minimum-wage legislation.
C)the time it takes workers to search for a job.
D)clashes between the motives of insiders and outsiders.

Question 5

The natural rate of unemployment is:

A)the average rate of unemployment around which the economy fluctuates.
B)about 10 percent of the labour force.
C)a rate that never changes.
D)the transition of individuals between employment and unemployment.

Question 6

If the number of employed workers equals 200 million and the number of unemployed workers equals 20 million, the unemployment rate equals _____ percent (rounded to the nearest percent).

A)0
B)9
C)11
D)20

Question 7

In the model of the steady-state unemployment rate with a fixed labour force, the rate of job finding equals the percentage of the _____ who find a job each month, while the rate of job separation equals the percentage of the _____ who lose their job each month.

A)labour force; labour force
B)labour force; unemployed
C)employed; labour force
D)unemployed; employed

Question 8

Sectoral shifts:

A)lead to wage rigidity.
B)explain the payment of efficiency wages.
C)depend on the level of the minimum wage.
D)make frictional unemployment inevitable.

Question 9

If the steady-state rate of unemployment equals 0.10 and the fraction of employed workers who lose their jobs each month (the rate of job separations) is 0.02, then the fraction of unemployed workers who find jobs each month (the rate of job findings) must be:

A)0.02.
B)0.08.
C)0.10.
D)0.18.

Question 10

A policy that decreases the job separation rate _____ the natural rate of unemployment.

A)will increase
B)will decrease
C)will not change
D)could either increase or decrease

Question 11

Frictional unemployment is inevitable because:

A)different sectors do not shift.
B)the economy needs to be lubricated.
C)workers never quit their jobs to change careers.
D)the demand for different goods always fluctuates.

Question 12

One reason for unemployment is that:

A)it takes time to match workers and jobs.
B)all jobs are identical.
C)the labour market is always in equilibrium.
D)a laid-off worker can immediately find a new job at the market wage.

Question 13

If the steady-state rate of unemployment equals 0.125 and the fraction of unemployed workers who find jobs each month (the rate of job findings) is 0.56, then the fraction of employed workers who lose their jobs each month (the rate of job separations) must be:

A)0.08.
B)0.125.
C)0.22.
D)0.435.

Question 14

Economists call the changes in the composition of demand among industries and regions:

A)insider-outsider conflicts.
B)sectoral shifts.
C)moral hazard.
D)adverse selection.

Question 15

Any policy aimed at lowering the natural rate of unemployment must either _____ the rate of job separation or _____ the rate of job finding.

A)reduce; reduce
B)increase; increase
C)reduce; increase
D)increase; reduce

Question 16

If the fraction of employed workers who lose their jobs each month (the rate of job separation) is 0.01 and the fraction of the unemployed who find a job each month is 0.09 (the rate of job findings), then the natural rate of unemployment is:

A)1 percent.
B)9 percent.
C)10 percent.
D)about 11 percent.

Question 17

When the unemployment rate is at a steady state:

A)no hiring or firings are occurring.
B)the number of people finding jobs equals the number of people losing jobs.
C)the number of people finding jobs exceeds the number of people losing jobs.
D)the number of people losing jobs exceeds the number of people finding jobs.

Question 18

The macroeconomic problem that affects individuals most directly and severely is:

A)inflation.
B)unemployment.
C)low savings.
D)low investment.

Question 19

All of the following are reasons for frictional unemployment except:

A)workers have different preferences and abilities.
B)unemployed workers accept the first job offer that they receive.
C)the flow of information is imperfect.
D)geographic mobility takes time.

Question 20

Employment insurance increases the amount of frictional unemployment by:

A)making workers more frantic in their search for new jobs.
B)inducing workers to accept the first job offer that they receive.
C)making employers more reluctant to lay off workers.
D)softening the economic hardship of unemployment.

Question 21

The unemployment resulting when real wages are held above equilibrium is called _____ unemployment, while the unemployment that occurs as workers search for a job that best suits their skills is called _____ unemployment.

A)efficiency; inefficiency
B)efficiency; structural
C)frictional; efficiency
D)structural; frictional

Question 22

One efficiency-wage theory implies that firms pay high wages because:

A)this practice increases the problem of moral hazard.
B)in wealthy countries, it is important to pay workers high wages to improve their health.
C)the more a firm pays its workers, the greater their incentive to stay with the firm.
D)paying high wages promotes adverse selection.

Question 23

When insiders have a much greater impact on the wage-bargaining process than do outsiders, the negotiated wage is likely to be _____ the equilibrium wage.

A)much greater than
B)much less than
C)almost equal to
D)about one-half of

Question 24

Public policy to increase the job-finding rate includes _____, and public policy to decrease the job-separation rate includes _____.

A)government employment agencies; higher employment-insurance benefits
B)government employment agencies; 100 percent experience-rated employment insurance
C)higher minimum wage laws; payment of employment insurance for longer periods
D)higher efficiency wages; partially experience-rated employment insurance

Question 25

If wage rigidity holds the real wage above the equilibrium level, an increase in the supply of labour will _____ the number unemployed.

A)increase
B)decrease
C)not change
D)possibly increase, decrease, or leave unchanged

Question 26

All of the following are causes of structural unemployment except:

A)minimum-wage laws.
B)the monopoly power of unions.
C)employment insurance.
D)efficiency wages.

Question 27

Centralized union wage bargaining with government intervention in Sweden gives relatively more influence to ______, while firm-level union wage bargaining in Canada gives relatively more influence to ______.

A)efficiency wages; sectoral shifts
B)sectoral shifts; efficiency wages
C)insiders; outsiders
D)outsiders; insiders

Question 28

Permitting a lower minimum wage for teenagers would likely:

A)raise teenage unemployment.
B)raise teenage wages overall.
C)prevent teenagers from getting job experience.
D)raise unemployment among unskilled adults.

Question 29

Wage rigidity:

A)forces labour demand to equal labour supply.
B)is caused by sectoral shifts.
C)prevents labour demand and labour supply from reaching the equilibrium level.
D)increases the rate of job finding.

Question 30

In the case of unions, the conflict of interest between different groups of workers results in insiders wanting _____, while outsiders want _____.

A)more hirings; high wages
B)high wages; more hirings
C)high wages; fewer hirings
D)fewer hirings; high wages

Question 31

actively searching for a job to match their skills.
b.
not eligible to receive employment-insurance benefits.
c.
waiting for a job to become available.
d.
relocating to another part of the country as a result of sectoral shifts.
ANSWER:
c
Which of the following is the best example of structural unemployment?

A)Tim is looking for a job with flexible hours but has not been offered one yet.
B)Vickie lost her job as a graphic artist at a movie studio because she did not have training in computer-generated animation.
C)Kirby is seeking a job as an airline pilot, but the high union wages in the industry have limited the number of jobs available.
D)Fatima lost her job at a packing plant but has not looked very intensively for a new job because she still has two months of employment-insurance benefits left.

Question 32

According to efficiency-wage theories, firms benefit by paying higher-than-equilibrium wages because worker _____ increases.

A)productivity
B)turnover
C)unionization
D)shirking

Question 33

Unions contribute to structural unemployment when collective bargaining results in wages:

A)above the equilibrium level.
B)below the minimum wage.
C)below the equilibrium level.
D)above the level of unemployment compensation.

Question 34

Which of the following statements about minimum-wage workers in Canada is not correct:

A)minimum-wage workers are more likely to be male.
B)minimum-wage workers are more likely to work part-time.
C)minimum-wage workers are more likely to be less educated.
D)minimum-wage workers are more likely to be young.

Question 35

Efficiency-wage theories suggest that a firm may pay workers more than the market-clearing wage for all of the following reasons except to:

A)reduce labour turnover.
B)improve the quality of the firm's labour force.
C)increase worker effort.
D)reduce the firm's wage bill.

Question 36

Which of the following policies were adopted by the government in an attempt to reduce the natural rate of unemployment?

A)employment insurance
B)government employment agencies
C)public retraining programs
D)tax credit for workers' skills training

Question 37

According to studies of individual unemployed workers, these workers are most likely to find a job:

A)about three months before their employment insurance runs out.
B)within a few weeks of their employment insurance running out.
C)about three months after their employment insurance runs out.
D)at a time not influenced by the remaining number of weeks of employment insurance.

Question 38

When the real wage is above the level that equilibrates supply and demand:

A)the quantity of labour supplied exceeds the quantity demanded.
B)the quantity of labour demanded exceeds the quantity supplied.
C)there is no unemployment.
D)the labour market clears.

Question 39

The "working home" tax benefit:

A)increases the government's tax revenue.
B)reduces the incomes of poor working families.
C)does not raise labour costs.
D)is not an alternative to raising the minimum wage.

Question 40

Government policies directed at reducing frictional unemployment include:

A)abolishing minimum-wage laws.
B)making employment insurance 100 percent experience-rated.
C)increasing employment insurance.
D)making government part of the union-firm wage bargaining process.

Question 41

Spells of unemployment end when the unemployed person finds a job or:

A)withdraws from the labour force.
B)enters the labour force.
C)runs out of employment-insurance compensation.
D)refuses to answer unemployment survey questions.

Question 42

Which of the following characteristics made the 2008-2009 U.S. recession differ most sharply from previous recessions?

A)a large spike in the duration of unemployment
B)a large increase in teenage unemployment
C)higher rates of female unemployment than rates of male unemployment
D)an increase in the rate of job separation and a decrease in the rate of job finding

Question 43

Differences in unemployment rates across demographic groups are most closely correlated with differences in:

A)job-finding rates.
B)job-separation rates.
C)unionization rates.
D)efficiency-wage rates.

Question 44

Data on unemployment in Canada show that:

A)most spells of unemployment are long.
B)most weeks of unemployment are attributable to the long-term unemployed.
C)members of the labour force over age 55 have the highest unemployment rates.
D)the duration of unemployment falls during recessions.

Question 45

Which of the following statements most closely describes the variation in unemployment rates across countries in Europe?

A)Countries with higher rates of unionization tend to have higher unemployment rates, but this is partially mitigated if wage negotiations are coordinated among employers.
B)Countries with higher rates of unionization tend to have higher unemployment rates, and this tendency is exacerbated if wage negotiations are coordinated among employers.
C)Countries with more generous employment-insurance benefits tend to have higher unemployment rates, but this is partially mitigated if the benefits are offered for a longer period of time.
D)Countries with more generous employment insurance tend to have lower unemployment rates, but this effect is completely offset if benefits are offered for a longer period of time.

Question 46

By paying efficiency wages, firms contribute to higher unemployment because they:

A)increase the wage bill.
B)make workers more productive.
C)keep the wage below the equilibrium level.
D)keep the wage above the equilibrium level.

Question 47

Recent data suggest that structural unemployment in Canada can be explained:

A)exclusively by longer duration of unemployment.
B)exclusively by higher incidence of unemployment.
C)by longer duration of unemployment and lower incidence of unemployment.
D)by shorter duration of unemployment and higher incidence of unemployment.

Question 48

Discouraged workers or searchers are counted as:

A)part of the labour force.
B)out of the labour force.
C)employed.
D)unemployed.

Question 49

The generosity of employment-insurance benefits is measured by:

A)the replacement rate and the duration of benefits.
B)the median wage and the unemployment rate.
C)the price level and duration of unemployment.
D)the job-finding rate and the job-separation rate.

Question 50

Examples of "active" labour-market policies include all of the following except:

A)job-search assistance
B)subsidized employment
C)employment insurance
D)job-training programs

Question 51

Suppose that over the course of a year 100 people are unemployed for four weeks each (the short-term unemployed), while 10 people are unemployed for 52 weeks each (the long-term unemployed). Approximately what percentage of the total spells of unemployment were attributable to the long-term unemployed?

A)9 percent
B)10 percent
C)43.5 percent
D)56.5 percent

Question 52

Much of the difference in unemployment rates across Europe is attributable to differences in:

A)short-term unemployment.
B)long-term unemployment.
C)frictional unemployment.
D)the natural rate of unemployment.

Question 53

Paying efficiency wages helps firms reduce the problem of adverse selection by:

A)generating additional profits that can be used to pay for more proficient hiring managers.
B)keeping labour unions from organizing workers in the firm.
C)encouraging unsupervised workers to maintain a high level of productivity.
D)providing an incentive for the best-qualified workers to remain with the firm.

Question 54

Transitions into and out of the labour force:

A)rarely occur.
B)do not affect unemployment statistics.
C)make the interpretation of unemployment statistics complicated.
D)reduce the amount of frictional unemployment.

Question 55

Short-term unemployment is most likely to be _____ unemployment, while long-term unemployment is mostly likely to be _____ unemployment.

A)structural; frictional
B)structural; the natural rate of
C)the natural rate of; frictional
D)frictional; structural

Question 56

Most spells of unemployment are _____ term, and most weeks of unemployment are attributable to _____-term unemployment.

A)short; short
B)short; long
C)long; long
D)long; short

Question 57

Suppose that over the course of a year 100 people are unemployed for four weeks each (the short-term unemployed), while 10 people are unemployed for 52 weeks each (the long-term unemployed). Approximately what percentage of the total weeks of unemployment were attributable to the long-term unemployed?

A)9 percent
B)10 percent
C)43.5 percent
D)56.5 percent

Question 58

Policies to substantially reduce the natural rate of unemployment should be targeted at:

A)the short-term unemployed.
B)the long-term unemployed.
C)discouraged workers.
D)insiders and outsiders.

Question 59

Across countries of Europe, greater spending on employment insurance tends to _____ unemployment, and more "active" labour-market policies tend to _____ unemployment.

A)increase; increase
B)increase; decrease
C)decrease; decrease
D)decrease; increase

Question 60

As the relative demand for unskilled workers falls, wages for unskilled workers _____, and unemployment compensation becomes a _____ attractive option.

A)fall; more
B)fall; less
C)rise; more
D)rise; less

Question 61

If the underground economy is larger in Europe than in Canada, then the difference in the _____ number of hours worked between Europe and Canada may be smaller than the difference in the _____ numbers of hours worked.

A)measured; actual
B)actual; measured
C)annual; monthly
D)monthly; annual

Question 62

If the rate of separation is 0.02 and the rate of job finding is 0.08 but the current unemployment rate is 0.10, then the current unemployment rate is _____ the equilibrium rate, and in the next period it will move _____ the equilibrium rate.

A)above; toward
B)above; away from
C)below; toward
D)below; away from

Question 63

If the rate of job separation is 0.02 per month and the rate of job finding is 0.10 per month, what is the natural rate of unemployment?

Question 64

Assume that a country experiences a reduction in productivity that shifts the labour demand curve downward and to the left. If the labour market were always in equilibrium, this would lead to:

A)a lower real wage and a rise in unemployment.
B)a lower real wage and no change in unemployment.
C)a lower real wage and less unemployment.
D)no change in real wage or in unemployment.

Question 65

In an economy, if 5 percent of the employed lose their job every month (s = 0.05) and 15 percent of the unemployed find a job every month (f = 0.15), what is the steady rate of unemployment of the economy?

Question 66

The unemployment rate can be reduced by decreasing the rate of job separation and increasing the rate of job finding. What measures can government take to help control these rates? Give one example for each.

Question 67

If the economy were at a steady-state unemployment rate with a separation rate of 0.02 per month and a job-finding rate of 0.10 per month, and the labour force were 100 million, how many individuals would lose their jobs each month?

Question 68

Earlier retirement in Europe than in Canada contributes to:

A)higher employment-to-population ratios in Europe than in Canada.
B)lower employment-to-population ratios in Europe than in Canada.
C)more hours worked per year by the average employed person in Europe than the average employed person in Canada.
D)fewer hours worked per year by the average employed person in Europe than the average employed person in Canada.

Question 69

More frequent holidays for workers in Europe than in Canada contribute to:

A)higher employment-to-population ratios in Europe than in Canada.
B)lower employment-to-population ratios in Europe than in Canada.
C)more hours worked per year by the average employed person in Europe than the average employed person in Canada.
D)fewer hours worked per year by the average employed person in Europe than the average employed person in Canada.

Question 70

According to Olivier Blanchard, Europeans are more likely to use increases in real wages resulting from technological progress to increase _____, and Americans are more likely to use these increases in real wages to increase _____.

A)hours of work; hours of leisure
B)consumption of goods and services; hours of leisure
C)hours of leisure; consumption of goods and services
D)employment-insurance benefits; efficiency wages

Question 71

Which of the following hypotheses is consistent with fewer hours worked per year in Europe than in Canada?

A)fewer mandated holidays in Europe than in Canada
B)higher employment-to-population ratios in Europe than in Canada
C)higher tax rates in Europe than in Canada
D)a smaller underground economy in Europe than in Canada

Question 72

Assume that a country experiences a reduction in productivity that lowers the marginal product of labour for any given level of labour. In this case, the:

A)labour supply curve shifts to the right.
B)labour supply curve shifts to the left.
C)labour demand curve shifts upward and to the right.
D)labour demand curve shifts downward and to the left.

Question 73

Assume that the real wage in an economy is held above equilibrium.
a.Graphically illustrate how an increase in the supply of labour will change the number of unemployed workers. Be sure to label the axes and the quantities of labour hired before and after the increase in the labour supply.
b.Explain in words what happens to the number of unemployed as a result of this change.

Question 74

Assume that a country experiences a reduction in productivity that shifts the labour demand curve downward and to the left. If the real wage were rigid, this would lead to:

A)no change in the real wage and a rise in unemployment.
B)no change in the real wage and no change in unemployment.
C)no change in the real wage and a fall in unemployment.
D)a decrease in the real wage.

Question 75

Assume that the real wage in an economy is held above equilibrium.
a.Graphically illustrate how an increase in technology that raises the demand for labour will change the number of unemployed workers. Be sure to label the axes and the quantities of labour hired before and after the technological progress.
b.Explain in words what happens to the number of unemployed as a result of this change.

Question 76

It is said that some frictional unemployment is inevitable. What is the reason that some frictional unemployment is inevitable?

Question 77

Reducing the natural rate of unemployment requires reducing the rate of job separation and increasing the rate of job finding. Explain at least one policy that will impact each of these aspects of the natural rate of unemployment.

Question 78

Changes in economic policies will frequently have an impact on the unemployment rate. Explain whether each of the policy changes described is likely to (1) affect frictional or structural unemployment and (2) increase or decrease the measured unemployment rate.
a.The government reduces the number of weeks of unemployment insurance that unemployed workers can receive.
b.The government raises the minimum wage.
c.The government increases spending on job-training programs.

Question 79

Explain how paying efficiency wages can help employers overcome both moral hazard and adverse selection problems in employment.

Question 80

What type of wage rigidity is most likely to affect the unemployment rates of the following types of workers:
a.workers with low marginal labour productivity?
b.workers in the auto industry?
c.workers engaged in creative work that is not easily monitored?