Chapter 15, Labor Markets, Unemployment, and Inflation Video Solutions, Macroeconomics

Problem 1

In each of the following situations, what type of unemployment is Melanie facing?
a. After completing a complex programming project, Melanie is laid off. Her prospects for a new job requiring similar skills are good, and she has signed up with a programmer placement service. She has passed up low-paying job offers.
b. When Melanie and her co-workers refused to accept pay cuts, her employer outsourced their programming tasks to workers in another country. This phenomenon is occurring throughout the programming industry.
c. Due to the current slump in investment spending, Melanie has been laid off from her programming job. Her employer promises to re-hire her when business picks up.

Naveed Naemi

Numerade Educator

02:40

Problem 2

Each month, usually on the first Friday of the month, the Bureau of Labor Statistics releases the Employment Situation Summary for the previous month. Part of the information released concerns how long individuals have been unemployed. Go to www.bls.gov to find the latest report. On the Bureau of Labor Statistics home page, click on the unemployment rate in the middle of the page, choose the Employment Situation Summary, and then click on the table titled "Unemployed persons by duration of unemployment." Use the seasonally adjusted numbers to answer the following questions.
a. How many workers were unemployed less than 5 weeks? What percentage of all unemployed workers do these workers represent? How do these numbers compare to the previous month's data?
b. How many workers were unemployed 27 or more weeks? What percentage of all unemployed workers do these workers represent? How do these numbers compare to the previous month's data?
c. How long has the average worker been unemployed (average duration, in weeks)? How does this compare to the average for the previous month's data?
d. Comparing the latest month for which there is data with the previous month, has the problem of long-term unemployment improved or deteriorated?

Naveed Naemi

Numerade Educator

01:32

Problem 3

There is only one labor market in Profunctia. All workers have the same skills and all firms hire workers with these skills. Use
the accompanying diagram, which shows the supply of and demand for labor, to answer the following questions.
a. What is the equilibrium wage rate in Profunctia? At this wage rate, what is the level of employment, the size of the labor force, and the unemployment rate?
b. If the government of Profunctia sets a minimum wage equal to $\$ 12,$ what will be the level of employment, the size of the labor force, and the unemployment rate?
c. If unions bargain with the firms in Profunctia and set a wage rate equal to $\$ 14$, what will be the level of employment, the size of the labor force, and the unemployment rate?
d. If the concern for retaining workers and encouraging high quality work leads firms to set a wage rate equal to $\$ 16$ what will be the level of employment, the size of the labor force, and the unemployment rate?

Jennifer Stoner

Numerade Educator

00:53

Problem 4

In Northlandia, there are no labor contracts; that is, wage rates can be renegotiated at any time. But in Southlandia, wage rates are set at the beginning of each odd year and last for two years. Why would equal-sized falls in aggregate output due to a fall in aggregate demand have different effects on the magnitude and duration of unemployment in these two economies?

Kaylee Mcclellan

Numerade Educator

00:27

Problem 5

In which of the following cases is it more likely for efficiency wages to exist? Why?
a. Jane and her boss work as a team selling ice cream.
b. Jane sells ice cream without any direct supervision by her boss.
c. Jane speaks Korean and sells ice cream in a neighborhood in which Korean is the primary language. It is difficult to find another worker who speaks Korean.

Jennifer Stoner

Numerade Educator

03:34

Problem 6

How will the following changes affect the natural rate of unemployment?
a. The government reduces the time during which an unemployed worker can receive benefits.
b. More teenagers focus on their studies and do not look for jobs until after college.
c. Greater access to the Internet leads both potential employers and potential employees to use the Internet to list and find jobs.
d. Union membership declines.

Naveed Naemi

Numerade Educator

04:20

Problem 7

With its tradition of a job for life for most citizens, Japan once had a much lower unemployment rate than that of the United States; from 1960 to $1995,$ the unemployment rate in Japan exceeded $3 \%$ only once. However, since the crash of its stock market in 1989 and slow economic growth in the 1990 s, the job-for-life system has broken down and unemployment has risen to more than $5 \%$ in $2003 .$ Explain the likely effect of these recent changes in Japan on the Japanese natural rate of unemployment.

Oluwadamilola Ameobi

Numerade Educator

01:17

Problem 8

The accompanying scatter diagram shows the relationship between the unemployment rate and the output gap in the United States from 1990 to $2004 .$ Draw a straight line through the scatter of dots in the figure. Assume that this line represents Okun's law:
Unemployment rate $=b-(m \times \text { Output gap })$ where $b$ is the vertical intercept and $m$ is the slope
What is the unemployment rate when aggregate output equals potential output? What would the unemployment rate be if the output gap were $2 \%$ ? What if the output gap were $-3 \%$ ? What do these results tell us about the coefficient $m$ in Okun's law?

Hossam Mohamed

Numerade Educator

05:36

Problem 9

After experiencing a recession for the past two years, the residents of Albernia were looking forward to a decrease in the unemployment rate. Yet after six months of positive economic growth, the unemployment rate remains the same as it was at the end of the recession. How can you explain why the unemployment rate did not fall although the economy was experiencing economic growth?

Md.Daniyal Arshad

Numerade Educator

01:03

Problem 10

Due to historical differences, countries often differ in how quickly a change in actual inflation is incorporated into a change in expected inflation. In a country such as Japan that has had very little inflation in recent memory, it will take longer for a change in the actual inflation rate to be reflected in a corresponding change in the expected inflation rate. In contrast, in a country such as Argentina, one that has recently had very high inflation, a change in the actual inflation rate will immediately be reflected in a corresponding change in the expected inflation rate. What does this imply about the shortrun and long-run Phillips curves in these two types of countries? What does this imply about the effectiveness of monetary and fiscal policy to reduce the unemployment rate?

Jennifer Stoner

Numerade Educator

01:17

Problem 11

The accompanying table shows data for the average annual rates of unemployment and inflation for the economy of Britannia from 1995 to 2004 . Use it to construct a scatterplot similar to Figure $15-9$
$$\begin{array}{|lcc|}
\text { Year } & \text { Unemployment rate } & \text { Inflation rate } \\
1995 & 4.0 \% & 2.5 \% \\
1996 & 2.0 \% & 5.0 \% \\
1997 & 10.0 \% & 1.0 \% \\
1998 & 8.0 \% & 1.3 \% \\
1999 & 5.0 \% & 2.0 \% \\
2000 & 2.5 \% & 4.0 \% \\
2001 & 6.0 \% & 1.7 \% \\
2002 & 1.0 \% & 10.0 \% \\
2003 & 3.0 \% & 3.0 \% \\
2004 & 7.0 \% & 1.5 \%
\end{array}$$
Are the data consistent with a short-run Phillips curve? If the government pursues expansionary monetary policies in the future to keep the unemployment rate below the natural rate of unemployment, how effective will such a policy be?

Hossam Mohamed

Numerade Educator