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Intermediate Microeconomics


7. Unemployment


The reason why some workers are unemployment is an important question in labor economics. While we have posited that competitive labor markets equate labor supply and labor demand, unemployment is common across labor markets. Unemployment can occur for many reasons, and some reasons are more worrysome than others. Workers could be in between jobs. A worker could have recently quit his/her job, and they are now searching for a replacement job. A mother/father could have exited the labor force for a period of time to rear their children and could be re-entering the labor force. Or, a worker may be unemployed because they do not possess the skills that are demanded by employers. In the Pencats for this topic, we cover the flows betweeen employment and unemployment, determinants of the asking wage (i.e. the wage recquired to get an unemployed job seeker to accept a job), and the tradeoff between inflation and unemployment.


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Flows between Employment and Unemployment

This Pencast describes flows between employment and unemployment and shows how to determine the steady-state unemployment rate. [Play Pencast]


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Asking Wage

This Pencast defines the idea behind an "asking wage" and shows how to find the wage offer required to induce an unemployed worker to accept a job offer. [Play Pencast]


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Discount Rates and the Asking Wage

This Pencast illustrates how an increase (decrease) in discount rates, which makes unemployed job seekers more present-oriented (future-oriented), affects the asking wage. [Play Pencast]


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Unemployment Insurance and the Asking Wage

This Pencast illustrates how the provision of unemployment insurance affects the asking wage. In addition, increases/decreases in benefit levels and their effects on the asking wage are discussed. [Play Pencast]


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Phillip's Curve

This Pencast shows that there is a short-run tradeoff between the rate of inflation and the unemployment rate. It is shown that a rise in inflation rate in the short run lowers the unemployment. However, an increase in the inflation rate raises reservation wages, which can increase unemployment in the long run. [Play Pencast]


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