Question

Determine what type of unemployment is at work: frictional, structural or cyclical.

• 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 offers for low-paying jobs.
• Melanie and her co-workers form a union and as a result of the negotiated wage increases, she loses her job.
• Due to the current slump in investment spending, Melanie has been laid off from her programming job. Her employer promises to rehire her when business picks up.
• Melanie’s employer starts offering higher than market wages to encourage productivity and loyalty. Unfortunately, at the higher wage rate, the employer can’t keep all of the current workers and Melanie loses her job.

The country of Cupcakia has a population of 475 citizens. There are currently 250 citizens with a full-time job, 50 citizens who are working part-time but desire full-time work, 75 citizens who aren’t working but looking for work and 50 who wish to work but have given up looking. What’s Cupcakia’s unemployment rate?

Answer 1

a) After completing a complex programming project, Melanie is laid off. Her prospects for a new job requiring similar skills are good, she has signed up with a programmer placement service. She has passed up offers for low paying jobs

This is Frictional Unemployment. Melanie is waiting and searching for the right job. She has rejected low paying jobs and wants a high paying job suiting to her skillsets and requirements.This type of unemployment is created by shifting of people temporarily between jobs. They may have quit one job to find another, or they could be trying to find the best opportunity after graduation.

b) Melanie and her co-workers form a union and as a result of the negotiated wage increases, she loses her job.

This is Structural Unemployment.Structural Unemployment involves mismatches between job seekers and job openings. Unemployed people who lack skills or do not have sufficient education are placed here/ dumb people and are called as structurally Unemployed.Due to wage increase firm will employ less workers and lay off some workers.Unions can also influence the wages paid by firms whose work forces are not unionized because the threat of unionization can keep wages above the equilibrium level. Firms dislike unions. Unions raise wages.

Unions increase bargaining power of labor on many issues (e.g.hours worked,working conditions).Firms must pay workers high wages to keep them happy and discourage them from forming a union. This type of unemployment is called Structural Unemployment.

c) Due to the current slump in investment spending, Melanie has been laid off from her programming job. Her employer promises to rehire her when business picks up

This is Cyclical Unemployment. Melanie has been laid off due to slump in business.Cyclical Unemployment occurs when people who are not working because firms do not need their labor due to a lack of demand or a downturn in the business cycle. These people are laid off.

d) Melanie’s employer starts offering higher than market wages to encourage productivity and loyalty. Unfortunately, at the higher wage rate, the employer can’t keep all of the current workers and Melanie loses her job.

This is Structural Unemployment . Due to high wages the employer will lay off certain workers and will retain most efficient workers by paying them high wages. The Unemployment thus created is called Structural Unemployment.Higher wages reduce labor turnover. Workers quit for many reasons. But, the more a firm pays its workers, the greater their incentive to stay with firm.By decreasing turnover, firm decreases time and money spent hiring and training new workers.Efficiency wage theories hold that high wages make workers more productive.

e) Total Population = 250 Million

Unemployment Rate = Total Unemployed / Total Labor Force

Total Population = 475

People with full time job = 250

People with Part time job = 50

People actively looking for work = 75

Discouraged workers = 50

Total Unemployed = People Actively Looking for Work = 75 million

Total Labor Force = Total Unemployed + Total Employed

Total Employed = People with Full Time Job + People with Part time Job

= 250 + 50 = 300 Million

Total Labor Force = 300 + 75 = 375 million

Unemployment Rate = 75/ 375 * 100 = 20%