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Dr. Savvas C Savvides-- School of Business, EUROPEAN UNIVERSITY CYPRUS PRINCIPLES OF MACROECONOMICS Overview In this chapter, we will examine broadly the labor market and see how full utilization of our labor resources improves the level of production and our standard of living. We will see how economists measure the performance of the labor market using unemployment statistics. We will also address a number of sources of unemployment, the different types of unemployment, it causes and the associated costs – private and social - of being unemployed, as well as some policies that the government might use to lower certain types of unemployment. Learning Objectives By the end of this chapter, students should understand: ¾ the data used to measure the amount of unemployment. ¾ how unemployment can result from minimum-wage laws. ¾ how unemployment can arise from bargaining between firms and unions. ¾ how unemployment results when firms choose to pay efficiency wages. Key Points 1. The unemployment rate is the percentage of those who would like to work but do not have jobs. The Bureau of Labor Statistics calculates this statistic monthly based on a survey of thousands of households. 2. The unemployment rate is an imperfect measure of joblessness. Some people who call themselves unemployed may actually not want to work, and some people who would like to work have left the labor force after an unsuccessful search. 3. In the U.S. economy, most people who become unemployed find work within a short period of time. Nonetheless, most unemployment observed at any given time is attributable to the few people who are unemployed for long periods of time. 4. One reason for unemployment is the time it takes for workers to search for jobs that best suit their tastes and skills. Unemployment insurance is a government policy that, while protecting workers’ incomes, increases the amount of frictional unemployment. 5. A second reason why our economy always has some unemployment is minimum-wage laws. By raising the wage of unskilled and inexperienced workers above the equilibrium level, minimum-wage laws raise the quantity of labor supplied and reduce the quantity demanded. The resulting surplus of labor represents unemployment. 6. A third reason for unemployment is the market power of unions. When unions push the wages in unionized industries above the equilibrium level, they create a surplus of labor. 7. A fourth reason for unemployment is suggested by the theory of efficiency wages. According to this theory, firms find it profitable to pay wages above the equilibrium level. High wages can improve worker health, lower worker turnover, increase worker effort, and raise worker quality. Chapter 28
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This note was uploaded on 09/17/2008 for the course ABA 123 taught by Professor Daniel during the Spring '08 term at City University of Hong Kong.

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