Question

Answer each of the following parts:

(a) Briefly outline the condition that holds in the labour market when unemployment is the result of workers losing old jobs and finding new jobs and the unemployment rate, U/L, is at its steady- state value. Use this condition to derive an expression for the unemployment rate as a function of f, the rate at which unemployed workers find jobs, and s, the rate at which employed workers are separated from their jobs. (Hint: The labour force, L, is the sum of employed workers, E, and unemployed workers, U.)

(b) Suppose that the Government of Canada creates a national internet job registry that provides job seekers with information on all available jobs in Canada. What effect would you expect this policy to have on frictional unemployment? Explain.

(c) Suppose that the separation rate, s, increases as a result of technological change. In answering the following questions, assume that (i) the rate of job finding, f, remains unchanged, and (ii) that the unemployment rate was at a steady state prior to the change. How does the flow of workers leaving jobs compare with the flow of workers entering jobs immediately after the separation rate changes? How will the unemployment rate change over time? Sketch a graph of the unemployment rate over time.

Answer 1