Question

Which of the following would cause frictional unemployment to fall?

Trade union membership declines, causing a fall in the market wage.

Unemployment benefits become less generous.

Technological change leads to better employee-employer matching software, speeding up the process by which unemployed workers find prospective employers.

The economy booms.

The government enacts a law requiring businesses to provide a year's notice before laid-off workers actually leave their jobs.

Unemployment — End of Chapter Problem

a. Long-term unemployment from a severe economic downturn causes unemployed workers to lose skills relative to those workers who remain employed, making it harder for the unemployed to find jobs even after economic conditions improve.

Economists call this secondary impact of the initial unemployment

marginally attached.

structural unemployment.

natural unemployment.

hysteresis.

b. The long‑term unemployed often find it more difficult to find jobs even after economic conditions improve due to lost job skills.

The result is that

the cyclical unemployment rate will be higher.

the equilibrium unemployment rate does not change.

there is a decrease in frictional unemployment.

the equilibrium unemployment rate will be higher.

Answer 1

1. The correct answer is (b) unemployment benefits become less generous. This is because frictional unemployment consists of those who are out of their jobs because of reasons such as looking for better jobs prospects, marriage, etc. This includes those people who are unemployed for some time and are looking for better job prospects. When unemployment benefits are reduced, this will leave people with lesser incomes. Due to this, they will speed up their process of looking for another job. This will reduce the frictional unemployment.

The other options are incorrect because frictional unemployment is not concerned with employers laying off their employees. The economy boom will reduce cyclical unemployment. The technological changes affect structural unemployment. The trade union membership is alsp not related to the unemployment created by frictional causes.

2. The correct answer is structural unemployment. This is because it is the structural unemployment which concerns itself with the technological changed which results in changing the skill set of the workers and rendering them unemployed.

3. The correct answer is that the equilibrium unemployment rate will be higher. This is because if the structurally unemployed people are not able to find new jobs, even after the cyclical fluctuations are over, this will contribute to higher unemployment in the longer run. This is because this scenario will raise the number of workers willing and able to work but not getting any work, and hence contribute to unemployment.