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Lecture 16

lecture 16 ~ chapter 9 .docx

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Hannah Holmes

Would you hire a lawyer willing to work for $8 an hour? - no, only a bad lawyer would  the three types of unemployment  natural rate of unemployment  even when the economy is booming there will be always be some rate of unemployment  long run, average rate of unemployment  in terms of the three types of unemployment  frictional and structural are always part of the economy; means that these two make up the natural rate of unemployment  when we have business cycles  if the economy is in a recession , then the actual unemployment rate will be higher than the natural rate  if in expansion, have some unemployment but will be below the natural rate Three Causes of Structual Unemployment 1. Minimum wage: economic theory  minimum wage is a price floor; has to be binding = it is binding only if it is above the equilibrium  ex. Right now min wage is &10.25, then raise min wage to $12 (more people want those jobs, firms wont hire as many, unemployment caused by increase in minimum wage)  causes unemployment for some  structural unemployment Minimum wage: real world - binding minimum wage that gets increased to $12 - more people want those jobs, increase in unemployment but only on supply side - firms aren’t firing anyone - unskilled workers (mcdonalds) vertical demand curve because you might be able to use robots instead of workers in factories; in mcdonald still need some people Minimum wage: market for lawyers 2. Unions  people in unions on average make higher wages than people who ar
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