Question

Q3 Explain how each of the following would affect the probability that a job searcher will accept the next wage offer and thus affect the expected length of his or her unemployment: (a) a decline in the rate of inflation below the expected one and (b) a decrease in unemployment benefits.

Q4 How do you explain the existence of internal labor markets? What are their advantages to employers? To workers?

Answer 1

3. Explain how each of the following would affect the probability that a job searcher will accept the next wage offer and thus affect the expected length of his or her unemployment: (a) a decline in their rate of inflation below the expected one and (b) a decrease in unemployment benefits.

A rate of inflation below the expected rate will decrease the probability that a job searcher will accept the next wage offer and increase the expected length of the workers unemployment spell. A decrease in unemployment benefits will have the opposite effect.

4) How do you explain the existence of internal labor markets? What are their advantages to employers? To workers?

The reason for the existence of internal labor markets is that firms usually come across with considerable costs in training and recruiting workers and these costs can be reduced by dropping labor turnover. Workers require specific training for an acquired job. The cost of such training is borne by the employers.

Employer Advantages:

1) The reduction of worker turnover increases the return the firm receives on its investments in specific training.

2) The amount of training that the firm must organize also gets reduced in the internal labor market.

3) If the firm fills up the position from the outside market then it will have to pay out on alltraining that the employee needed. It can evade this cost by merely encouraging an employee who is already working and who have obtained a portion of this training.

4) Recruitment costs will be larger if a position is filled from external labor market. Even after interview and screeningthe firm will have only limited knowledge about the worker from external market. The firm will have a good knowledge about members of present work force. Promoting from within will reduce the recruitment and screening costs and lessen the chances making error in filling the job.

5) Moreover, the presence of job ladder will act as an incentive for the workers to be disciplined, productive and continuously motivated for new skills.

6) Internal labor market provides greater employee identification with the goals of the organization.

Advantages for workers:

1) Workers receive benefits in the form of improved job security as well as built in prospects for promotion and job training.

2) Workers may ascend a well-defined sequence of jobs that constitute the job ladder.

3) Workers are shielded from the competition in the external market.

4) Workers are protected from favoritism and capricious managerial decisions.

5) Workers benefit from promotions and training opportunities.