Question

In each of the following scenarios, indicate whether the unemployment rate will increase or decrease.

a. The government increases income tax rates   (Click to select)   increase   decrease   uncertain

b. The government repeals a law that made it difficult to fire workers   (Click to select)   increase   decrease   uncertain

c. There is an increase in the percentage of workers who are unionized   (Click to select)   increase   decrease   uncertain

d. The number of weeks workers are entitled to unemployment benefits falls   (Click to select)   decrease   increase   uncertain

e. More firms begin to pay efficiency wages   (Click to select)   increase   decrease   uncertain

f. The government lowers the minimum wage   (Click to select)   decrease   increase   uncertain

Only 100% certain answers please.

Answer 1

Unemployed people are those who are actively looking for work but are not getting it.

(a) If the government increases the income tax rate then the disposable income of individuals decreases. This will lead to fall in demand of goods or services. When the demand decreases, the producers will produce less. This will reduce employment or may also fire some people. So Unemployment will increase.

(b) If the law is made that makes it difficult to fire workers then unemployment will decrease as more workers will look for jobs.

(c) Unions are groups that deal with the working environment and wages of unionized workers. So it is uncertain that an increase in the percentage of workers who unionized will increase or decrease unemployment.

(d) If the unemployment benefits fall then people will be looking for job. This will decrease unemployment.

Note: Unemployed people are those who are looking for work and not getting it. We do not account in the above answer the job vacancies because if someone is looking for work with some changes in regulations will be considered unemployed.