Question

Which of the following statements are true?

Multiple answers: You can select more than one option

A

If unemployment benefits are increased¸ the minimum cost of a unit of effort for the employer will rise.

B

If the wage doesn’t change¸ employees will work harder in periods of high unemployment.

C

If workers continue to receive benefits however long they remained unemployed¸ an increase in the level of unemployment will have no effect on the best response curve.

D

If an employee’s disutility of effort increases¸ the reservation wage will rise.

Answer 1

Each option is evaluated as below:

Option A) this is true. In the normal course an unemployed person would be eager to get a job, since unemployment benefit is low; this thing helps to get an unit by an employer at the minimum cost; but if the unemployment benefit increases, such unemployed person should compare such high benefit with the amount of compensation of employer; this thing increases employer effort and cost.

Option B) this is true. Usually wage decreases in the period of high unemployment (like recession); but if it doesn’t change, it gives favorable effect on employees; they should try to keep the job intact by working hard.

Option C) this is not true. Since the duration of benefit increases, the effort of searching job would be the minimum; therefore, workers may not give the best response.

Option D) this is not true. Disutility means discomfort or pain associated with job search; in normal course this is normal; but if it is severe it indicates bad economic phase; but it doesn’t affect the reservation wage.

Answer: A and B