Principles of Economics- Mankiw (5th) 570

Principles of Economics- Mankiw (5th) 570 - 588 PA R T N I...

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588 PART NINE THE REAL ECONOMY IN THE LONG RUN vacancies is disseminated slowly among the many firms and households in the economy. WHY SOME FRICTIONAL UNEMPLOYMENT IS INEVITABLE Frictional unemployment is often the result of changes in the demand for labor among different firms. When consumers decide that they prefer Compaq over Dell computers, Compaq increases employment, and Dell lays off workers. The former Dell workers must now search for new jobs, and Compaq must decide which new workers to hire for the various jobs that have opened up. The result of this transi- tion is a period of unemployment. Similarly, because different regions of the country produce different goods, employment can rise in one region while it falls in another. Consider, for instance, what happens when the world price of oil falls. Oil-producing firms in Texas re- spond to the lower price by cutting back on production and employment. At the same time, cheaper gasoline stimulates car sales, so auto-producing firms in Michigan raise production and employment. Changes in the composition of de-
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