sch6 - Inthischapter,youwilllearn:...

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In this chapter, you will learn: In this chapter, you will learn: …about the natural rate of unemployment: what it means what causes it understanding its behavior in the real world
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2 CHAPTER 6 Unemployment Natural rate of unemployment Natural rate of unemployment : In a recession, the actual unemployment rate rises above the natural rate. In a boom, the actual unemployment rate falls below the natural rate.
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Actual and natural rates of unemployment, U.S.,  1960-2010 Percent of labor force Unemployment rate Natural rate of unemployment
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4 CHAPTER 6 Unemployment A first model of the natural rate of  Unemployment Notation: = # of workers in labor force = # of employed workers = # of unemployed = unemployment rate
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5 CHAPTER 6 Unemployment Assumptions: 1. L is exogenously fixed. 2. During any given month, s =, f = s and f are exogenous
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6 CHAPTER 6 Unemployment The transitions between employment and  unemployment Employed Unemployed × E × U
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7 CHAPTER 6 Unemployment The steady state condition Definition: the labor market is in steady state , or long-run equilibrium, if the unemployment rate is constant. The steady-state condition is: # of employed people who lose or leave their jobs # of unemployed people who find jobs
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8 CHAPTER 6 Unemployment Finding the “equilibrium” U rate f × U = Solve for U / L : ( f + s ) × U = s × L so,
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9 CHAPTER 6 Unemployment Example: Each month, 1% of employed workers lose their jobs ( s = 0.01) 19% of unemployed workers find jobs ( f = 0.19) Find the natural rate of unemployment: 0 01 0 05, or 5% 0 01 0 19 U s L s f = = = + + . . . .
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10 CHAPTER 6 Unemployment Policy implication A policy will reduce the natural rate of unemployment only if it lowers s or increases f .
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CHAPTER 6 Unemployment Why is there unemployment? If job finding were instantaneous (
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This note was uploaded on 10/25/2011 for the course ECON 321 taught by Professor Sani during the Spring '08 term at Rutgers.

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sch6 - Inthischapter,youwilllearn:...

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