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Department
Economics for Management Studies
Course
MGEB06H3
Professor
Jack Parkinson
Semester
Summer

Description
Chapter 6 Unemployment Notes N natural rate of unemployment the steady-state rate of unemployment toward which the economy gravitates in the long run N another term that is often used for the natural unemployment rate is the level of structural and frictional unemployment N unemployment rises above the long-run average level when the economy is in a recession and it falls below this level when the economy is overheatedthis short-run variations are referred to as cyclical unemployment 6.1 Job Loss, Job Finding, and the Natural Rate of Unemployment N let L denote the labour force, E the number of employed workers, and U the number of unemployed workers N because every worker is either employed or unemployed, the labour force is the sum of the 2: L = E + U N in this notation, the rate of unemployment is U L N let s denote the rate of job separation, the fraction of employed individuals who lose or leave their job each month N let f denote the rate of job finding, the fraction of unemployed individuals who find a job each month N together, the rate of job separation s and the rate of job finding f determine the rate of unemployment N if the unemployment rate is neither rising nor fallingthat is, if the labour market is in a steady statethen the number of people finding jobs fU must equal the number of people losing jobs sEfU = sE fU = s (L U f (U L) = s (1 U L) N solving for UL U L = [s (s + f)] = [1 (1 + f s)] N this equation shows that the steady-state rate of unemployment UL depends on the rates of job separation s and job finding f N the higher the rate of job separation, the higher the unemployment rate N the higher the rate of job finding, the lower the unemployment rate N any policy aimed at lowering natural unemployment rate must reduce the rate of job separation or increase the rate of job finding N any policy that affects the rate of job separation or job finding also changes the natural rate of unemployment 6.2 Job Search and Frictional Unemployment N frictional unemployment results because it takes time for workers to search for the jobs that best suit their skills and tastes N sectoral shift a change in the composition of demand among industries or regions Public Policy and Frictional Unemployment N government employment agencies disseminate info about job vacancies with view to matching jobs and workers more efficiently N publicly funded retraining programs are designed to ease the transition of workers from declining to growing industries N if these programs succeed at increasing the rate of job finding, they decrease the natural rate of unemployment N employment insurance (EI) government program under which unemployed collect benefits for certain period after losing jobs N by softening economic hardship of unemployment, EI increases amount of frictional unemployment and raises natural rate N unemploye
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