Prelim 2 notes - Chapter 6 Natural rate of unemployment the...

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Chapter 6 Natural rate of unemployment- the average rate of unemployment around which the economy fluctuates. L= E + U Rate of Unemployment = U/L Frictional Unemployment- the unemployment caused by the time it takes workers to search for a job. Sectoral Shift- the change in the composition of demand among industries or regions. Unemployment insurance- unemployed workers can collect a fraction of their wages for a certain period after losing their jobs. Wage Rigidity- the failure of wages to adjust to a level at which labor supply equals labor demand. Structural Unemployment- the unemployment resulting from wage rigidity and job rationing. Insiders- those workers already employed by a firm, try to keep their firm’s wages high. Outsiders- are unemployed, bear part of the cost of higher wages because at a lower wage they might be hired. Efficiency-wage theories- propose a third cause of wage rigidity in addition to minimum-wage laws and unionization.
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