1. Module 13 Mar 2015

2.  Job Search – when people spend time looking for employment  Frictional unemployment – unemployment due to the time workers spend in a job search. ◦ Always happening due to job creation and job destruction

3.  Structural unemployment is unemployment that results when there are more people seeking jobs in a labor market than there are jobs available at the current wage rate

4.  Minimum Wage – government mandated price floor for labor  Labor Unions – have effects similar to minimum wage as collective bargaining leads to higher wages  Efficiency wages – wages that employers set above the equilibrium wage rate as an incentive for better employee performance  Natural rate of unemployment – is the unemployment rate that arises from the effects of frictional plus structural unemployment.

5.  Cyclical unemployment is the deviation of the actual rate of unemployment from the natural rate  Natural unemployment = frictional + structural  Actual unemployment = natural + cyclical

6.  Changes in the Natural Rate of Unemployment happen for several reasons ◦ Changes in labor force characteristics – i.e., baby boomers, married women ◦ Changes in labor market institutions – people not joining unions, temporary job agencies, technological changes ◦ Changes in government policies – high minimum wage, generous unemployment benefits, job- training subsidies