Deck 7: Unemployment and the Labor Market

Question 1

The unemployment rate in the United States since 1952 has:

A) never been close to zero.
B) gravitated toward a steady-state rate of zero.
C) remained constant from year to year.
D) equaled the natural rate of unemployment in every year.

Answer 1

never been close to zero.

Question 2

In 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.

Answer 2

the number of people finding jobs equals the number of people losing jobs.

Question 3

Unemployment caused by the time it takes workers to search for a job is called ______ unemployment.

A) frictional
B) structural
C) efficiency
D) insider

Answer 3

frictional

Question 4

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 5

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 6

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 7

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 8

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 9

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 10

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) 10
D) 20

Question 11

In the model of the steady-state unemployment rate with a fixed labor 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) labor force; labor force
B) labor force; unemployed
C) employed; labor force
D) unemployed; employed

Question 12

The natural rate of unemployment is:

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

Question 13

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

Question 14

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

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

Question 15

The natural rate of unemployment in the United States since 1950 has averaged between ______ and ______ percent.

A) 0; 1
B) 1; 3
C) 5; 6
D) 10; 15

Question 16

If the fraction of employed workers who lose their jobs each month (the rate of job separations) 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

One reason for unemployment is that:

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

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

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 employment inevitable.

Question 20

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.
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 pilot's union.
D) Joan is willing to work at the going wage, but there are no jobs available.

Question 21

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

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

Question 22

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 23

All of the following are causes of structural unemployment except:

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

Question 24

Wage rigidity:

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

Question 25

Firms currently have incentives to temporarily lay off workers because firms typically are charged for ______ of workers' unemployment benefits.

A) all
B) only a part
C) none
D) twice the cost

Question 26

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 2 months of unemployment insurance benefits left.

Question 27

All of the following policies were adopted by the government in an attempt to reduce the natural rate of unemployment except:

A) unemployment insurance.
B) government employment agencies.
C) public retraining programs.
D) the Illinois bonus program for unemployment insurance claimants who found jobs quickly.

Question 28

The unemployment resulting from wage rigidity and job rationing is called ______ unemployment.

A) frictional
B) structural
C) minimum-wage
D) insider

Question 29

Unemployment 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 30

The unemployment insurance system may be desirable because unemployment insurance:

A) raises the natural rate of unemployment.
B) reduces the rate of job finding.
C) increases workers' uncertainty about their incomes.
D) induces workers to reject unattractive job offers.

Question 31

Economists who have studied minimum-wage laws in the United States find that a 10 percent increase in the minimum wage increases teenage unemployment by about:

A) 10 to 30 percent.
B) 5 percent.
C) 1 to 3 percent.
D) 0 percent.

Question 32

Public policy to increase the job finding rate include _____ and public policy to decrease the job separation rate include _____.

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

Question 33

If wage rigidity holds the real wage above the equilibrium level, an increase in the demand for labor will ______ the number unemployed.

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

Question 34

In past non-recessionary periods, a typical worker in the United States who is covered by unemployment insurance receives ______ percent of his or her former wages for ______ weeks.

A) 50; 26
B) 50; 52
C) 67; 26
D) 67; 52

Question 35

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

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

Question 36

When there is structural unemployment, the real wage is:

A) rigid at a level below the market-clearing level.
B) rigid at the market-clearing level.
C) rigid at a level above the market-clearing level.
D) flexible.

Question 37

The minimum wage:

A) is usually about 75 percent of the average wage earned in manufacturing.
B) raises the wages of highly skilled workers.
C) encourages master workers to take on apprentices.
D) has its greatest impact on teenage unemployment.

Question 38

Government policies directed at reducing frictional unemployment include:

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

Question 39

Most current unemployment-insurance programs are:

A) paid for fully by state governments.
B) paid for fully by the federal government.
C) 100 percent experience rated.
D) partially experience rated.

Question 40

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

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

Question 41

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 42

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 43

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 44

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 45

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

Question 46

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 labor 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 47

During the period from 1990 to 2006, in the United States, most spells of unemployment lasted:

A) less than one month, yet most of the weeks of unemployment occurred in spells lasting two or more months.
B) more than one month, and most weeks of unemployment occurred in spells of two or more months.
C) less than one month, and most weeks of unemployment occurred in spells of one month or less.
D) more than one month, but most weeks of unemployment occurred in spells of one month or less.

Question 48

The percentage of workers who belong to unions in the United States is approximately:

A) 13 percent.
B) 23 percent.
C) 33 percent.
D) 53 percent.

Question 49

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 50

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 51

Paying efficiency wages helps firms reduce the problem of moral hazard by:

A) generating additional profits that can be used to improve working conditions.
B) matching the wages each worker is paid to the number of units of output each worker produces.
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 52

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 53

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 54

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 55

When outsiders have a greater role than do insiders in the wage-bargaining process, the negotiated wage is likely to be ______ the equilibrium wage.

A) much greater than
B) much less than
C) much closer to
D) about twice

Question 56

The earned income tax credit:

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

Question 57

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 58

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

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

Question 59

All of the following statements about minimum-wage workers in the United States are correct except:

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 60

When Henry Ford paid his workers $5 per day when the prevailing wage was between $2 and $3 a day:

A) it greatly increased his company's costs.
B) workers reduced their work efforts because they felt they "had it made."
C) Ford proved the efficiency-wage theory was wrong.
D) it raised the efficiency of his workers.

Question 61

European unemployment rates are positively correlated with each of the following except:

A) the percentage of the previous wage replaced by unemployment insurance.
B) the percentage of the labor force that is unionized.
C) the length of the period during which unemployment benefits can be collected.
D) the amount of coordination among employers in bargaining with unions.

Question 62

Which of the following rankings (from most severe to least severe) best captures the degree of hardship associated with various types of unemployment?

A) discouraged worker, short term, long term
B) involuntarily part time, job leavers, job losers,
C) job losers, job leavers, marginally attached
D) job leavers, involuntary part time, discouraged workers

Question 63

Which of the following characteristics made the 2008-2009 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 64

Entry into and exit from the labor force are important to the determination of the unemployment rate because:

A) more than one-half of the unemployed have only recently entered the labor force.
B) most of the unemployed are young workers still looking for their first job.
C) discouraged workers are counted as part of the labor force.
D) almost one-half of all spells of unemployment end in the unemployed person's withdrawal from the labor market.

Question 65

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 unemployment 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 unemployment insurance tend to have lower unemployment rates, but this effect is completely offset if benefits are offered for a longer period of time.

Question 66

The recent reduced demand for unskilled workers relative to skilled workers has led to ______ for unskilled workers in Europe compared to ______ for unskilled workers in the United States.

A) unemployment; lower wages
B) lower wages; unemployment
C) more unionization; efficiency wages
D) efficiency wages; more unionization

Question 67

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

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

Question 68

Results from the Euro-Barometer Survey series suggests that people are happier when inflation is ______ and unemployment is ______.

A) high; high
B) high; low
C) low; high
D) low; low

Question 69

Data on unemployment in the United States 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 labor force over age 55 have the highest unemployment rates.
D) the duration of unemployment falls during recessions.

Question 70

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 71

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 72

Many economists attribute part of the recent increase in European unemployment to:

A) high birthrates.
B) slow rates of technological change.
C) generous benefits for unemployed workers.
D) increased demand for unskilled workers.

Question 73

In 2007 in the United States among labor-force members ages 16 to 19, the highest unemployment rate was for:

A) black females.
B) black males.
C) white females.
D) white males.

Question 74

Economist Robert Barro attributes the increase in the duration of unemployment to ______, while economist Paul Krugman attributes the increased duration to _____.

A) increased immigration of low-wage workers; tax cuts given to high-wage workers
B) contractionary monetary policy; expansionary fiscal policy
C) high marginal tax rates on the wealthy; high marginal tax rates on low-wage workers
D) expanded unemployment-insurance coverage; insufficient consumer demand

Question 75

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

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

Question 76

Compared with an employed white teenage male, an employed middle-aged white male is ______ likely to become unemployed and, once unemployed, is ______ likely to find a job.

A) less; more
B) less; just as
C) more; less
D) just as; more

Question 77

A spell of unemployment begins when a person leaves his or her job or:

A) withdraws from the labor force.
B) enters the labor force.
C) takes a vacation.
D) has been without a job for at least four weeks.

Question 78

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 79

Discouraged workers are counted as:

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

Question 80

Transitions into and out of the labor force:

A) rarely occur.
B) do not affect unemployment statistics.
C) make unemployment statistics difficult to interpret.
D) reduce the amount of frictional unemployment.