ECON 1BB3 Lecture Notes - Unemployment, Frictional Unemployment, Structural Unemployment

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Published on 12 Apr 2013
School
McMaster University
Department
Economics
Course
ECON 1BB3
Richard Damra Tuesday, February 12, 2013
Econ 1BB3 Chapter 9
Would you hire a lawyer willing to work for 8$ an hour?
Review: Why is there unemployment?
There are three types of unemployment:
o 1. Frictional unemployment
o 2. Structural unemployment
o 3.Cyclical unemployment
Natural rate of unemployment: Long run average rate of unemployment in the economy.
Difference between the natural and actual rate is caused by cyclical unemployment.
When we talk about natural rate we are talking about only frictional or structural
If actual is higher than natural then we are in recession if lower we are in an expansion.
Minimum Wage: Economic Theory
Price Floor
Minimum Wage: Real World
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Document Summary

There are three types of unemployment: 1. Natural rate of unemployment: long run average rate of unemployment in the economy. Difference between the natural and actual rate is caused by cyclical unemployment. When we talk about natural rate we are talking about only frictional or structural. If actual is higher than natural then we are in recession if lower we are in an expansion. Minimum wage binding: if you are working without a minimum wage binding you are earning less than the minimum wage. Part time job, but they are only part time. Consider a small town that has one factory and many small businesses. Union: a group of workers and they want more money and higher wages and they convince the employers by threatening to strike. Now suppose workers in the factory form a union. Firms operate more efficiently by increased worker productivity if wages are above equilibrium level.

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