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Chapter 28

Unemployment

Educators


Problem 1

In June 2009, at the trough of the Great Recession, the Bureau of Labor Statistics announced that of all adult Americans, 140,196,000 were employed, 14,729,000 were unemployed, and 80,729,000 were not in the labor force. Use this information to calculate:

a. the adult population

b. the labor force

c. the labor-force participation rate

d. the unemployment rate

Kaylee M.
Numerade Educator

Problem 2

Explain whether each of the following events increases, decreases, or has no effect on the unemployment rate and the labor-force participation rate.

a. After a long search, Jon finds a job.

b. Tyrion, a full-time college student, graduates and is immediately employed.

c. After an unsuccessful job search, Arya gives up looking and retires.

d. Daenerys quits her job to become a stay-at-home mom.

e. Sansa has a birthday, becomes an adult, but has no interest in working.

f. Jaime has a birthday, becomes an adult, and starts looking for a job.

g. Cersei dies while enjoying retirement.

h. Jorah dies working long hours at the office.

Yi Chun L.
Washington University in St Louis

Problem 3

Go to the website of the Bureau of Labor Statistics (http://www.bls.gov). What is the national unemployment rate right now? Find the unemployment rate for the demographic group that best fits a description of you (for example, based on age, sex, and race). Is it higher or lower than the national average? Why do you think this is so?

Yi Chun L.
Washington University in St Louis

Problem 4

Between January 2010 and January 2016, U.S. employment increased by 12.1 million workers, but
the number of unemployed workers declined by only 7.3 million. How are these numbers consistent with each other? Why might one expect a reduction in the number of people counted as unemployed to be smaller than the increase in the number of people employed?

Yi Chun L.
Washington University in St Louis

Problem 5

Economists use labor-market data to evaluate how well an economy is using its most valuable resource$-$ its people. Two closely watched statistics are the unemployment rate and the employment$-$population ratio (calculated as the percentage of the adult population
that is employed). Explain what happens to each of these in the following scenarios. In your opinion,
which statistic is the more meaningful gauge of how well the economy is doing?

a. An auto company goes bankrupt and lays off its workers, who immediately start looking for new
jobs.

b. After an unsuccessful search, some of the laid-off workers quit looking for new jobs.

c. Numerous students graduate from college but cannot find work.

d. Numerous students graduate from college and immediately begin new jobs.

e. A stock market boom induces newly enriched 60-year-old workers to take early retirement.

f. Advances in healthcare prolong the life of many retirees.

Yi Chun L.
Washington University in St Louis

Problem 6

Are the following workers more likely to experience short-term or long-term unemployment? Explain.

a. a construction worker who is laid off because of bad weather

b. a manufacturing worker who loses his job at a plant in an isolated area

c. a stagecoach-industry worker who is laid off because of competition from railroads

d. a short-order cook who loses his job when a new restaurant opens across the street

e. an expert welder with little formal education who loses his job when the company installs automatic welding machinery

Yi Chun L.
Washington University in St Louis

Problem 7

Using a diagram of the labor market, show the effect of an increase in the minimum wage on the wage
paid to workers, the number of workers supplied, the number of workers demanded, and the amount of unemployment.

Kaylee M.
Numerade Educator

Problem 8

Consider an economy with two labor markets$-$one for manufacturing workers and one for service workers. Suppose initially that neither is unionized.

a. If manufacturing workers formed a union, what impact would you predict on the wages and employment in manufacturing?

b. How would these changes in the manufacturing labor market affect the supply of labor in the
market for service workers? What would happen to the equilibrium wage and employment in this
labor market?

Kaylee M.
Numerade Educator

Problem 9

Structural unemployment is sometimes said to result from a mismatch between the job skills that employers want and the job skills that workers have. To explore this idea, consider an economy with two industries: auto manufacturing and aircraft manufacturing.

a. If workers in these two industries require similar amounts of training, and if workers at the beginning of their careers can choose which industry to train for, what would you expect to happen to the wages in these two industries? How long would this process take? Explain.

b. Suppose that one day the economy opens itself to international trade and, as a result, starts
importing autos and exporting aircraft. What would happen to the demand for labor in these
two industries?

c. Suppose that workers in one industry cannot be quickly retrained for the other. How would these
shifts in demand affect equilibrium wages both in the short run and in the long run?

d. If for some reason wages fail to adjust to the new equilibrium levels, what would occur?

Yi Chun L.
Washington University in St Louis

Problem 10

Suppose that Congress passes a law requiring employers to provide employees some benefit (such as healthcare) that raises the cost of an employee by $\$$4 per hour.

a. What effect does this employer mandate have on the demand for labor? (In answering this and
the following questions, be quantitative when you can.)

b. If employees place a value on this benefit exactly equal to its cost, what effect does this employer
mandate have on the supply of labor?

c. If the wage can freely adjust to balance supply and demand, how does this law affect the wage
and the level of employment? Are employers better or worse off? Are employees better or
worse off?

d. Suppose that, before the mandate, the wage in this market was $\$$3 above the minimum wage. In this case, how does the employer mandate affect the wage, the level of employment, and the level of unemployment?

e. Now suppose that workers do not value the mandated benefit at all. How does this alternative
assumption change your answers to parts (b) and (c)?

Yi Chun L.
Washington University in St Louis