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Econ 202 Chapter 10
Terms in this set (100)
In 1914, Henry Ford began paying his workers $5 per day, about twice the going wage. As a result, turnover and absenteeism fell. However, profits fell.
False; Profits rose
According to the theory of efficiency wages, it cannot be profitable for firms to keep wages above equilibrium.
False; Paying workers above equilibrium wages increases their productivity and reduces hiring and training costs
Data on the unemployment rate in the U.S. since 1960 show that the unemployment rate is sometimes very close to zero.
False; Frictional and structural unemployment prevent the unemployment rate from moving close to zero
Someone who loses his job at a futon store because the demand for futons has fallen and the demand for other types of beds has risen, is structurally unemployed.
False; They're frictionally unemployed, Changes in demand for workers across industries create sectoral shifts which cause workers in declining industries to search for new jobs and so increase frictional unemployment
Rudy has graduated from college and is devoting his time to searching for a job. He has seen plenty of openings but has not yet been offered one that best suits his tastes and skills. Rudy is
frictionally unemployed. Frictional unemployment exists even in the long run; Frictional unemployment is created by the time it takes for job seekers and employers to find a good match. Structural unemployment is created by above equilibrium wages. Both types of unemployment exist even in the long run, they are not created by the business cycle;
NRU which is long run consists of frictional and structural unemployment
If the number of people unemployed rises from 3 million to 3.2 million while the number of people employed rises from 60 million to 66 million, and the population rises from 100 million 103 million, the unemployment rate rises.
False; Unemployment Rate formula: number of unemployed/Labor force x 100
Suppose there are a large number of teens who used to work or seek work who now no longer do either, but instead focus on school work to prepare for college and careers. Other things the same, this makes
both the number of people unemployed and the labor force fall; Since fewer teens are searching for work, the number of people unemployed will fall. Since fewer teens work, the number of people employed falls. Since the labor force is the sum of the unemployed and the employed, the labor force falls.
A minimum wage above equilibrium results in unemployment by creating a surplus in some labor markets.
True; If the minimum wage is above equilibrium, then it creates a surplus of labor.
According to 2012 data for U.S. teenagers (ages 16-19) ______ had the highest unemployment rate and _______ had the lowest unemployment rate.
black males, white females.
Refer to the figure. If the government imposes a minimum wage of $9, then how many workers will be unemployed?
8,000; At $9 firms demand 6,000 workers but 14,000 are willing to work. So there is a surplus of 8,000 workers
The official government unemployment rate (U-3) fails to fully capture labor utilization because it does not capture
people who are working part-time and would like to work full-time; The official unemployment rate counts people who are working part-time as employed, even if they want to work full-time
Caroline is the president of a nationwide company that provides janitorial services. She decides to raise the wages of her workers so that they are above equilibrium. According to the theory of efficiency wages her workers are likely to
shirk less and stay on the job longer; Two reasons for paying efficiency wages are to reduce shirking and worker turnover.
Efficiency wages create frictional unemployment.
False; Efficiency wages are wages paid above equilibrium and so create structural unemployment.
The labor force participation rate is computed as 100 x
(the number of people employed + the number of people unemployed) divided by the adult non institutionalized population; Labor Force/Population
Tom becomes unemployed but is unemployed for only a few weeks. Arnold becomes unemployed and remains so for fifteen weeks. During a typical year there are _____ unemployed persons whose experience is similar to Tom's than to Arnold's. Persons with unemployment experiences similar to _____ count for most of the unemployment at any point in time.
more, Arnold's; Most people who become unemployed are unemployed for a short time, but most unemployment observed at any given time is long term.
When a union forms in some industry its negotiations
raises wages and create a surplus in the market for labor in that industry; A union is structural unemployment, raises the wage in that industry above the equilibrium which creates a surplus.
In 2009 Michigan had an adult population of about 7.8 million, a labor-force participation rate of 63 percent, and an unemployment rate of 13.4 percent. About how many people were employed?
4.25 million; check notebook for work
Suppose that neither workers in the paper industry nor workers in the furniture industry are unionized. If workers in the paper industry unionize, the supply of workers in the furniture industry will
rise, reducing the wages of workers in the furniture industry; If workers in the paper industry unionize, then they will bargain to raise the wages of workers in the paper industry. This increase in wages reduce the demand for workers in the paper industry and so some of them will lose their jobs (can't pay enough people so have to let them go). Some of those who lose their jobs will search for jobs in the furniture industry. This search raises the supply of workers in the furniture industry and so reduces wages in the furniture industry; the more workers there are, the less wages there are to go around
In the U.S. minimum-wage laws create significant unemployment for
teenagers but not workers such as experienced plumbers; affects teens and unskilled workers
Economists mostly agree that reducing unemployment benefits would
reduce unemployment, but there is disagreement about its effects on economic well-being
One issue with using changes in U-3 as evidence of the health of the labor market is that an increase in the number of unemployed persons who become disabled will ____
decrease U-3, all else being equal, because they are not counted in the labor force.
The worker health version of the efficiency wage theory is
less relevant for explaining unemployment in developed countries than in less developed countries; Efficiency wages are above equilibrium wages to increase productivity. By providing a nutritious diet workers may be stronger and have fewer sick days. Given the lower level of real wages in developing countries, this explanation is most relevant for developing countries.
Refer to Table 28-2. If the local government imposed a minimum wage of $12 in Crabapple Corners, how many people would be unemployed?
2,000; At $12 an hour 10,000 people would like to work, but firms only want to hire 8,000. So there is a surplus of 2,000 workers who are unemployed.
Refer to the figure. If unemployment is 4,000 workers, then the minimum wage must be
$8; At $8 there is a surplus of 4,000 workers
Which of the following includes everyone in the adult population that the Bureau of Labor Statistics counts as "unemployed?"
anyone who is not employed, is available for work, has looked for work in the past four weeks, and anyone who is waiting to be recalled from a job from which they have been laid off.
People who are unemployed because wages are, for some reason, set above the level that brings labor supply and demand into equilibrium are best classified as
structural unemployment; Structural unemployment is defined as unemployment created by above equilibrium wages.
Paying efficiency wages means that wages are
above equilibrium, and unemployment is higher than otherwise; Efficiency wages are above equilibrium wages intended to raise productivity and profits, but they also raise unemployment.
About what fraction of U.S. jobs are destroyed in the U.S. each year?
10 in 100
In 2013 in Alaska the adult noninstitutionalized population was 537 thousand, 340 thousand people were employed, and 24 thousand people were unemployed. According to these numbers, the Alaskan labor force participation rate and unemployment rate were about
Someone who quits their job is _________ for unemployment benefits. Someone who loses their job because the company they work for has gone out of business is _______ for unemployment insurance benefits.
not eligible, eligible
One issue with using changes in U-3 as evidence of the health of the labor market is that an increase in the number of people working part-time who were working full-time (and would still like to work full-time) will ____
not change U-3, all else being equal, because part-time and full-time work are both counted as employed.
An argument against the presence of unions is that the resulting allocation of labor ____
Minimum wages create
structural unemployment if they create a surplus in the labor market
If the minimum wage were currently above equilibrium, then a decrease in the minimum wage would
reduce structural unemployment; Above equilibrium wages create structural unemployment by creating a surplus in the labor market. If the minimum wage falls, the surplus will fall so unemployment will fall.
Blake is not looking for work because there have been many job cuts where he lives, and he doesn't think it is likely that he will find work. Sierra hasn't looked for work for six weeks, but she would like a job, and she has looked for work in the past. Who does the Bureau of Labor Statistics count as marginally attached workers?
Sierra but not Blake
Which of the following is not among the four industries with the largest employment in the United States today?
Refer to the table. If unemployment is 3,000, what is the minimum wage in Crabapple Corners?
$13; A minimum wage above the equilibrium wage creates a surplus of labor. This surplus is equal to the number of people unemployed. At a wage of $13, there is a surplus of 3,000
An argument for the presence of unions is that they ____
are a necessary antidote to the market power of firms
Which of the following is not correct?
a.A union is a type of cartel.
b.A union is a worker association that bargains with employers over wages, benefits, and working conditions.
c.Unions play a much smaller role in the U.S. labor market now than they did in the past.
d.Union membership is very small in most European countries.
Union membership is very small in most European countries
The unemployment rate is computed as 100 times the number of people unemployed divided by the number of people
in the labor force
According to 2012 data on the U.S. population, which of the following was correct for the adult population of prime working age, ages 25-54? White females had a
lower unemployment rate than black females but a similar labor force participation rate
A difference between the unemployment arising from minimum-wage laws and from frictional unemployment is that with minimum-wage laws people are ____ for jobs and with frictional unemployment, people are ____ for jobs.
waiting, searching; When a wage is the above equilibrium level, workers are unemployed because they are waiting for jobs to open up as opposed to searching for jobs during the job-search process.
The Bureau of Labor Statistics places people in the "employed" category if they are
temporarily absent from work due to illness
Unemployment insurance makes workers _____ likely to negotiate for job security when searching for a job and _____ likely to have a long job search.
Refer to the figure. If the government imposes a minimum wage of $9, then how many workers will be employed?
6,000; asking how many are demanded not supplied
Which of the following was not among the four industries with the largest employment in the United States a century ago?
The natural rate of unemployment includes
both unemployment created by job search and unemployment created by above equilibrium wages; includes frictional and structural
If the minimum wage is above the equilibrium wage, then an increase in the minimum wage ______ the quantity of labor supplied and ______ the quantity of labor demanded.
create a surplus of labor and so create structural unemployment.
Over the past several decades in the United States, the labor force participation rate(s) of
women has increased while that of men has decreased
You are hired by the state to help people find jobs. You meet with each unemployed person for half an hour each week. Over the course of the year most of the persons you work with will be unemployed for a _______ time. Over the course of a day most of your time will be spent working with people who will be unemployed for a ______ time.
Frictional unemployment in the U.S. is inevitable because
sectoral shifts are always happening; Sectoral shifts happen as changes in technology and changes in the demand for goods create changes in how much labor different sectors demand. The time spent moving between jobs creates frictional unemployment.
increase profits and unemployment
If the natural rate of unemployment is 5 percent and the actual rate of unemployment is 5.5 percent, then by definition there is
cyclical unemployment amounting to 0.5 percent of the labor force; Cyclical unemployment is the difference between actual unemployment and unemployment at its natural rate
A wage above equilibrium
helps explain structural unemployment and the natural rate of unemployment.; Structural unemployment is part of unemployment at its natural rate
In February 2015 the Bureau of Labor Statistics reported an adult population of 250 million, unemployment of 10.4 million, employment of 142.8 million, and .8 million marginally attached workers. Based on these numbers the labor force participation rate was
100 x 153.2/250; don't add marginally attached
Advocates of government-run employment agencies and public-training programs believe they make job search more efficient and that they reduce the inequities of changing job markets.
Refer to the table. If the local government imposed a minimum wage of $10 in Crabapple Corners, how many people would be unemployed?
0; Qd and Qs are equal
Who of the following would be included in the Bureau of Labor Statistics' "unemployed" category?
Mike, who is waiting to be recalled from a job from which he has been laid off; The unemployed include only those who are available for work and have looked for work in the last four weeks, and anyone waiting to be recalled from a job from which they have been laid off
Unionization in one industry causes wages to
rise in that industry causing labor supply to rise in industries that are not unionized; A union negotiates for above equilibrium wages. This results in some workers becoming unemployed. Some of these workers will look for work in other industries. This increase in the supply of labor in other industries reduces the wages in those industries
An argument for the presence of unions is that they ____
increase the happiness and productivity of workers
Suppose that the adult non-institutionalized population of California is 30 million. If 18 million people are employed and 1.5 million are unemployed, then
The unemployment that results from the job search is ____
Most economists agree that eliminating unemployment insurance would decrease the amount of unemployment in the economy.
True; Unemployment benefits stop when the unemployed find jobs. This reduces the incentives to seek and accept jobs, so unemployment insurance increases the time spent unemployed
The theory of efficiency wages explains why
firms may increase productivity and profits by setting wages above the equilibrium level
Tony manages a company where electrical engineers work to improve existing products and develop new ones. He considers paying higher wages in hopes of attracting better applicants. According to efficiency wage theory Tony will get a
better pool of applicants but hire fewer workers; By paying higher wages more quality applicants will apply. The increase in the wage means the firm's demand for workers falls.
The primary reason for unemployment in the U.S. is the minimum wage.
An argument for the presence of unions is that they ____
help firms respond to worker's concerns
Refer to the figure. If the government imposes a minimum wage of $8, how many workers will be employed?
8,000; asking for demand not supply
Tony has just finished high school and started looking for his first job, but has not yet found one. Other things the same, when Tony starts looking for work the unemployment rate
and the labor-force participation rate both increase; he's unemployed now that he's looking for job so both increase because Labor force increases
Refer to the table. How many people were employed in Lazonia in 2015?
9300; The employed include paid employees, those who work in their own business, those who work in a family business without pay, and those who are temporarily absent from work due to illness, weather, or vacation. So, the number employed = 8,000 + 200 + 800 + 300 = 9,300
Which famous company executive introduced an innovative pay system that is consistent with the theory of efficiency wages?
Mary manages a data entry center. Workers sometimes play games on the internet, check their personal email, or go slow. According to efficiency wage theory to reduce this shirking Mary could
pay above equilibrium wages. This would raise unemployment; Paying above equilibrium wages makes workers more eager to keep their jobs and so they reduce shirking to reduce the chances of getting fired. Wages above equilibrium raise structural unemployment (Worker effort)
Claire manages a health clinic. Once receptionists, patient-care representatives, and record keepers are trained they often leave to find other work. Claire considers paying a higher wage hoping workers will stay on the job longer. According to the theory of efficiency wages, if Claire raises wages paid to these types of employees they will
tend to stay on the job longer and profits will rise; Paying above equilibrium wages reduces turnover. With less turnover the firm spends less on hiring and training so its profits rise (Worker turnover)
Sam quit his job because he wanted to move somewhere else. Amy just started looking for work after being out of the labor market for a couple of years. Mason was laid off because his employer's sales had fallen due to economic conditions. Who is currently eligible for unemployment insurance benefits?
Tom has no job but keeps applying for one at a business that is unionized. He is qualified and he finds the pay attractive, but the firm always has many applicants. Tom is
structurally unemployed. Structural unemployment is created by above equilibrium wages; Tom is structurally unemployed due to the union negotiating a wage above its equilibrium level.
Unemployment data are collected
through a regular survey of about 60,000 households
Which of the following is an example of an efficiency wage?
An above-equilibrium wage offered by a firm to attract a more talented pool of job applicants; Efficiency wages are above equilibrium wages intended to increase worker productivity. For example, higher wages attract a better pool of applicants (worker quality)
raise structural unemployment.
Refer to the figure. If the government imposes a minimum wage of $5, how many workers will be unemployed?
0; The minimum wage of $5 is below the equilibrium wage of $7. So, the labor market will be at equilibrium where unemployment is zero.
Right-to-work laws mean that
workers cannot be required to join the union where they work
About what percentage of manufacturing jobs are destroyed every year, and about what percentage of workers leave their jobs in a typical month?
10% and 3%
Spells of unemployment end with job seekers exiting the labor force about
1/2 of the time
Most economists believe unions are good for the economy as a whole.
False; there is no consensus among economists that unions are either good or bad for the economy as a whole
About 25% of U.S. workers belong to unions.
False; About 11% of workers belong to unions.
Suppose that people choose to increase the use of e-readers and decrease the number of printed books they buy. Companies hire more workers to produce e-readers and publishing companies lay off printers. The unemployment this creates is an example of
frictional unemployment created by sectoral shifts; This is an example of a sectoral shift which creates frictional unemployment.
Clyde is the president of a firm that bottles beer in St. Louis, Missouri. There are many other such firms in the area. Clyde decides that if he pays his workers a wage higher than the going market wage, his profits will increase. Which of the following is a likely explanation for his decision?
The higher the wage, the less turnover in his work force; Higher wages encourage workers to stay on the job longer. At higher wages, workers face a higher cost if they lose their jobs and so have incentive to reduce shirking (worker turnover)
Refer to the table. How many people were unemployed in Lazonia in 2015?
1,000; doesn't include marginally attached workers
Evidence shows that unemployment benefits may _________ job search efforts which by itself would ________.
reduce, raise frictional unemployment; frictional unemployment related to benefits
Economists have found that union workers earn what percent more than similar nonunion workers?
10 to 20
Which of the following is not correct?
a.Collective bargaining by unions raises the wages of both union and nonunion workers.
b.An organized withdrawal of labor from a firm by a union is called a strike.
c.The power of a union comes from its ability to strike if the union and the firm do not agree on the terms of employment.
d.Economists who study the effects of unions typically find that union workers earn about 10 to 20 percent more than similar workers who do not belong to unions.
Collective bargaining by unions raises the wages of both union and nonunion workers; When a union negotiates for higher wages it reduces employment in that industry and some of these workers look for work in other industries which reduces the wages in those industries
increase productivity and profits; Efficiency wage theory claims that paying above equilibrium wages increases productivity and profits
Suppose that the Bureau of Labor Statistics predicts that the number of jobs for nurses will grow faster than most occupations, while the number of jobs for oil workers will decline. This change in the labor market would lead to
frictional unemployment created by sectoral shifts
According to the theory of efficiency wages, if a firm stops paying efficiency wages it is likely to see a(n)
decrease in the quality of job applicants and need to replace workers more frequently; Efficiency wages increase the quantity of quality job applicants and reduce worker turnover
Frictional unemployment can be the consequence of
workers leaving jobs to find ones that suit them better, firms going out of business, and firms firing workers
Which of the following is not correct?
a.Right-to-work laws allow workers in a unionized firm to choose not to join the union.
b.Unions are subject to antitrust laws.
c.The Wagner Act of 1935 prevents U.S. employers from interfering when workers try to organize unions.
d.The National Labor Relations Board is the U.S. government agency that enforces workers' right to unionize.
Unions are subject to antitrust laws
Frictional unemployment is caused by
job search and sectoral shift
An argument against the presence of unions is that they ____
are essentially a cartel
Refer to the table. What was Lazonia's unemployment rate in 2015?
If the wage is kept above its equilibrium for any reason, the result is
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