ECON 100 Lecture Notes - Lecture 7: Unintended Consequences, W. M. Keck Observatory, Potential Output
Document Summary
While unemployment insurance reduces the severity of an economic contraction, it also created unintended consequences. Unintended consequences: government regulations on hiring and firing also contribute to frictional unemployment. Regulations on hiring include restrictions on who can and must be interviewed, paperwork that employers must complete for new hires, and additional tax documents that must be filed for employees. Cyclical unemployment: the third type of unemployment. Cyclical unemployment: caused by recessions or economic downturns. It is the most serious type of unemployment because it means that jobs are not available for many people who want to work: unlike structural unemployment, it is not considered a natural type of unemployment. The natural rate of unemployment: (u*) is the typical rate of unemployment that occurs when the economy is growing normally. Maintaining this natural rate is more appropriate goal (than zero unemployment) for policymakers: economists never know the exact numerical value of the natural rate, in part because it changes over time.
