1. 3 types of unemployment when economy is at full employment equilibrium:
    • 1. Structural
    • 2. Frictional
    • 3. Seasonal
  2. Causes for structural unemployment
    • 1. Structural:
    • ◦ result of technological changes
    • ◦ changing patterns of demand that determine growing and declining industries
    • ◦ changes in geographical location of jobs
  3. Causes for frictional unemployment
    • 2. Frictional:
    • ◦ occurs when workers are between jobs
    • ◦ workers have skills that are transferrable from one industry to another

    (Usually short term)
  4. Causes for seasonal unemployment
    • 2. Seasonal:
    • ◦ occurs when demand for labor in certain industries changes on a seasonal basis because of variations in needs
  5. Types of policies a government can pursue to lower structural unemployment:
    • 1. Market oriented measures
    • ◦ letting wages fall in depressed areas so businesses come to hire cheap labor
    • ◦ lower unemployment benefits
    • ◦ reduce job security and make firing easier

    • 2. Interventionist
    • ◦ training programs
    • ◦ education
    • ◦ subsidize on-the-job training
    • ◦ encourage firms to hire structurally unemployed
  6. Types of policies a government can pursue to lower frictional unemployment:
    • 1. Market oriented measures
    • ◦ ↑ incentives faced by workers to accept work
    • ◦ lower unemployment benefits
    • ◦ reduce period of time during which a worker is entitled to claim unemployment benefits
    • ◦ lower personal income taxes

    • 2. Interventionist
    • ◦ improving information flows between employers and job seekers, » ↓ time worker spends looking for job
    • ◦ establishment of more job centers and employment agencies
  7. Types of policies a government can pursue to lower seasonal unemployment:
    • Similar to lowering frictional unemployment
    • ◦ provide information to workers about jobs available during off-peak seasons in other industries
  8. Identify 2 types of unemployment that may occur when the economy is producing less than full employment output
    Full employment equilibrium- real GDP equals potential GDP

    ◦ When the economy's real GDP is less than full employment GDP, the economy is experiencing a recessionary gap

    ◦ In a recessionary gap, the economy is experiencing real wage unemployment or cyclical unemployment. These types of unemployment arise in addition to unemployment when the economy is producing full employment output
  9. Explain the kinds of policies a government can pursue to lower the rate of unemployment
Card Set
Economics, Chapter 10