Question

Suppose the world price of steel falls substantially. The demand for labour among steel-producing firms in Northern Ontario will (decrease/increase) . The demand for labour among automobile-producing firms in Southern Ontario, for which steel is an input, will (increase/decrease) . The temporary unemployment resulting from such sectoral shifts in the economy is best described as (seasonal/cyclical/structural/frictional unemployment).

Suppose the government wants to reduce this type of unemployment. Which of the following policies would help achieve this goal? Check all that apply.

Establishing government-run employment agencies to connect unemployed workers to job vacancies

Increasing the benefits offered to unemployed workers through the government's unemployment insurance program

Extending the number of weeks for which unemployed workers are eligible for unemployment insurance benefits from the government

Answer 1

Decrease. This is because it becomes less profitable to producer steel and this reduces production of steel and thus demand for labor will decrease.

Increase. The automobile firms will increase their production due to fall in the price of inputs, since labor and steel are complements in production and not substitutes, the demand for labor will increase.

Frictional. Such unemployment is known as Frictional unemployment. because it represents shifting in between sectors for jobs.

Option A. Government should run employment agencies for connecting unemployed to job vacancies. This is because it is frictional type of unemployment and this will reduce the search time of unemployed workers.