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Chapter 8: Q. 41 (page 215)

Unemployment rates have been higher in many

European countries in recent decades than in the United States. Is the main reason for this long-term difference in unemployment rates more likely to be cyclical unemployment or the natural rate of unemployment? Explain briefly.

Short Answer

Expert verified

Ans: The main reason for long-term difference in unemployment rates is because of natural rate of unemployment.

Step by step solution

01

Step 1. Definition:

The level of unemployment that exists even when the economy is stable is referred to as natural rate of unemployment. This unemployment results from the combination of economic, social, and political factors that occur when economy is stable and growing strongly.

02

Step 2. Explanation:

There are many European economies that have had unemployment rates even higher than 10% since 1970s and the reason behind is the conditions which are underlying supply and demand for labor that have been different in Europe. Further, many European countries have strict rules and regulations that impose an extra cost on businesses when they actually hire employees also there are laws in some of the countries that require firms to give notice to workers months before laying them off. These type of conditions and sorts of laws and regulations result in higher natural rate of unemployment more in Europe than in the United States.

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Most popular questions from this chapter

Beginning in the 1970s and continuing for three decades, women entered the U.S. labor force in a big way. If we assume that wages are sticky in a downward direction, but that around 1970 the demand for labor equaled the supply of labor at the current wage rate, what do you imagine happened to the wage rate, employment, and unemployment as a result of increased labor force participation?

Is the increase in labor force participation rates among women better thought of as causing an increase in cyclical unemployment or an increase in the natural rate of unemployment? Why?

Assess whether the following would be counted as 鈥渦nemployed鈥� in the Current Employment Statistics survey.

a. A husband willingly stays home with children while his wife works.

b. A manufacturing worker whose factory just closed down.

c. A college student doing an unpaid summer internship.

d. A retiree.

e. Someone who has been out of work for two years but keeps looking for a job.

f. Someone who has been out of work for two months but isn鈥檛 looking for a job.

g. Someone who hates her present job and is actively looking for another one.

h. Someone who decides to take a part time job because she could not find a full time position.

How do you calculate the unemployment rate? How do you calculate the labor force participation rate?

If you are out of school but working part time, are you considered employed or unemployed in U.S. labor statistics? If you are a full time student and working 12 hours a week at the college cafeteria are you considered employed or not in the labor force? If you are a senior citizen who is collecting social security and a pension and working as a greeter at Wal-Mart are you considered employed or not in the labor force?
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