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Unemployment and Its Natural Rate 305
CHAPTER 14 UNEMPLOYMENT AND ITS NATURAL RATE 315
Problems and Applications
1. The Bureau of Labor Statistics announced that in b. a manufacturing worker who loses her job at a
December 1998, of all adult Americans, 138,547,000 were plant in an isolated area
employed, 6,021,000 were unemployed, and 67,723,000 c. a stagecoach-industry worker laid off because of
were not in the labor force. How big was the labor competition from railroads
force? What was the labor-force participation rate? d. a short-order cook who loses his job when a new
Whatwas the unemployment rate? restaurant opens across the street
2. As shown in Figure 14-3, the overall labor-force
e. an expert welder with little formal education who
participation rate of men declined between 1970 and
loses her job when the company installs automatic
1990. This overall decline reflects different patterns
welding machinery
fordifferent age groups, however, as shown in the
6. Using a diagram of the labor market, show the effect of
following table.
an increase in the minimum wage on the wage paid to
workers, the number of workers supplied, the number
MEN MEN MEN
of workers demanded, and the amount of
ALLMEN 16–24 25–54 55 AND OVER
unemployment.
1970 80% 69% 96% 56% 7. Do you think that firms in small towns or cities have
1990 76 72 93 40 more market power in hiring? Do you think that firms
generally have more market power in hiring today than
Which group experienced the largest decline? Given this
50 years ago, or less? How do you think this change
information, what factor may have played an important
over time has affected the role of unions in the
role in the decline in overall male labor-force
economy? Explain.
participation over this period?
8. Consider an economy with two labor markets, neither of
3. The labor-force participation rate of women increased
which is unionized. Now suppose a union is established
sharply between 1970 and 1990, as shown in Figure 14-3.
in one market.
As with men, however, there were different patterns for
a. Show the effect of the union on the market in which
different age groups, as shown in this table.
it is formed. In what sense is the quantity of labor
employed in this market an inefficient quantity?
ALL WOMEN WOMEN WOMEN WOMEN
b. Show the effect of the union on the nonunionized
WOMEN 25-54 25-34 35-44 45-54
market. What happens to the equilibrium wage in
this market?
1970 43% 50% 45% 51% 54%
1990 58 74 74 77 71
9. It can be shown that an industry’s demand for labor will
become more elastic when the demand for the
industry’s product becomes more elastic. Let’s consider
Why do you think that younger women experienced
the implications of this fact for the U.S. automobile
abigger increase in labor-force participation than
industry and the auto workers’ union (the UAW).
olderwomen?
a. What happened to the elasticity of demand for
4. Between 1997 and 1998, total U.S. employment
American cars when the Japanese developed
increased by 2.1 million workers, but the number of
astrong auto industry? What happened to the
unemployed workers declined by only 0.5 million.
elasticity of demand for American autoworkers?
Howare these numbers consistent with each other?
Explain.
Why might one expect a reduction in the number of
b. As the chapter explains, a union generally faces
people counted as unemployed to be smaller than the
atradeoff in deciding how much to raise wages,
increase in the number of people employed?
because a bigger increase is better for workers
5. Are the following workers more likely to experience whoremain employed but also results in a greater
short-term or long-term unemployment? Explain. reduction in employment. How did the rise in auto
a. a construction worker laid off because of imports from Japan affect the wage-employment
badweather tradeoff faced by the UAW?
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