Currently, when a firm lays off a worker, the firm pays part of the worker’s unemployment...

Currently, when a firm lays off a worker, the firm pays part of the worker’s unemployment compensation (the rest of the money comes from the system’s general revenue). One suggested reform would require firms to pay all of the worker’s unemployment compensation. How will this reform affect the natural rate of unemployment? Explain your answer. Use the equation for the natural rate of unemployment to explain your answer

there is no additional detail to the problem.

equation= U/L = s/s+f

Solutions

Expert Solution

If the firms pay unemployment compensation to all the workers, then workers become lazy and do not search for new jobs in the market as they are getting minimum money for their subsistence. This would increase the proportion of structurally unemployment people in the market. s rises.

Natural rate of unemployment = s/(s+f)

Increase in s would raise the natural rate of unemployment.

Rahul Sunny answered 1 year ago

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