Академический Документы
Профессиональный Документы
Культура Документы
Problem Set 7. Unemployment
1. Government officials find it useful to measure the nation’s “economic health.” The unemployment
rate is currently used as a major indicator of the relative strength of labor supply and demand. Do you
think the unemployment rate is a useful indicator of labor market tightness?
2. Is the following assertion true, false, or uncertain? “Increasing the level of unemployment insurance
(UI) benefits will prolong the average length of spells of unemployment. Hence, a policy of raising
UI benefit levels is not socially desirable.” Explain your answer.
3. “With the growth of free trade, Mexican employers have sought to reduce union control over internal
labor markets, and they have eliminated promotion by seniority, rules against subcontracting, and
restrictions on the use of temporary workers—all in the name of greater flexibility.” Would you expect
greater employer flexibility in hiring and assigning workers to increase or decrease unemployment in
Mexico? Explain.
4. One student of the labor market effects of free trade argues that the government should offer “wage
insurance” to workers who lose jobs because of free trade. Under this proposal, the government
would replace a substantial portion of lost earnings if, upon reemployment, eligible workers find that
their new job pays less than the one they lost. This wage insurance would be available for up to two
years after the initial date of job loss. Would this wage insurance program reduce unemployment?
Explain.
5. Suppose that initially the Pennsylvania economy is in equilibrium with no unemployment:
Ls 1,000,000 200W and Ld 19,000,000 300W, where W annual wages and L number
of workers. Then structural unemployment arises because the demand for labor falls in Pennsylvania
but wages there are inflexible downward and no one moves out of state. If labor demand falls to
Ld 18,000,000 300W, how many workers will be unemployed in Pennsylvania? What will be its
unemployment rate?
Characteristic Number (in Thousands) of People
Population 500
Population over age 16 400
Persons employed fullor parttime 200
Persons unemployed and actively
seeking work 20
Persons who have quit seeking work
due to lack of success 10
Parttime workers seeking fulltime jobs 30
a. Identify the number of people employed, the number of people unemployed, and the number of
people in the labor force.
b. Calculate the labor force participation rate, the employment rate, and the labor force
unemployment rate.
7. On July 24, 2007, the federal minimum wage was increased from $5.15 per hour to $5.85 per hour.
Consider the effect of this increase on an unemployed job seeker. Using a job search model, what is
the effect on the probability of finding an acceptable job in any given period? How does this increase
affect the expected duration of unemployment and the expected wage (once employed)?
8. In the 1940s, many workers in forested areas along the MaineCanada border engaged in seasonal
work, in which they would work part of the year and be unemployed part of the year. At that time,
Maine and New Brunswick (the Canadian province sharing the Maine border) had similar
unemployment insurance (UI) systems, and the proportions of workers engaged in partyear work
were roughly equal. Since then, however, the weekly UI benefits in New Brunswick have grown
much more generous relative to those in Maine, and Maine has also taken steps to limit the weeks
of UI benefits “repeat users” of UI benefits can receive in one year (New Brunswick has no such
restrictions on repeat users). Assume that neither system charges firms UI premiums that are
affected by the firms’ layoff rates (that is, the financing of UI benefits is not “experiencerated”).If
we were to compare today both the unemployment rate and the proportions of Maine and New
Brunswick workers engaged in seasonal work, what do you think we would find? Explain your
reasoning completely, keeping in mind the demand and supply sides of the market for seasonal
work in both places.
9. Employees in China can generally be classified as either “regular” or “on contract” (the latter are
hired for a specified period of time). China has just adopted an employment system that requires
regular employees who have been with their employers for at least 10 years to be given “tenure” in
their jobs (they have permanent rights to employment with the employer, and cannot be fired). The
law does not apply to employees who work on contracts that have a specified time limit, even if