mankiw7e-chap06

mankiw7e-chap06 - Chapter 6 Unemployment Unemployment In...

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Unemployment Unemployment Chapter 6 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 Natural rate of unemployment Natural rate of unemployment : The average rate of unemployment around which the economy fluctuates. 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 in the U.S., 1960-2009 Percent of labor force Unemployment rate Natural rate of unemployment A first model of the natural rate Notation: L = No. of workers in labor force E = No. of employed workers U = No. of unemployed U / L = unemployment rate Assumptions: 1. L is exogenously fixed. 2. During any given month, s = rate of job separations , the fraction of employed workers that become separated from their jobs f = rate of job finding , fraction of unemployed workers that find jobs s and f are exogenous
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The transitions between employment and unemployment Employed Unemployed s E f U 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: s E = f U # of employed people who lose or leave their jobs # of unemployed people who find jobs Finding the “equilibrium” U rate f U = s E = s ( L U ) = s L s U Solve for U / L : ( f + s ) U = s L so, U s L s f
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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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mankiw7e-chap06 - Chapter 6 Unemployment Unemployment In...

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