Thursday 709

 

Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.

PART 9 The Real Economy in the Long Run
Chapter 28 of 36 Unemployment
Section 8 of 21
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Why do economies experience unemployment?
In most markets prices adjust to bring quantity supplied and quantity demanded into balance, so there is no surplus nor shortage of supply.
In the labor market the surplus of supply is unemployed people.
In an ideal labor market, wages would adjust to balance the quantity of labor supplied and the quantity of labor demanded.
This wage adjustment would ensure all workers are always employed.
Even when the overall economy is strong there are always some unemployed workers, the unemployment rate never drops to zero.
Rather, it fluctuates around the natural rate of unemployment, per Figure 2a.
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We will discuss four explanations for long-run unemployment:
-1- frictional unemployment
-2- minimum wage laws
-3 - unions and collective bargaining
-4- efficiency wages
Frictional unemployment results from the process time of matching workers and jobs, the time taken moving from one job to another.
It explains most cases of short unemployment spells
The other three explanations for unemployment involve the number of jobs available in certain labor markets being insufficient to offer a job to everyone who wants one.
This happens when the supplied quantity of labor exceeds the quantity demanded.
This supply-exceeds-demand type of unemployment is called structural unemployment and explains longer unemployment spells.
This structural unemployment results when wages are set above the level that brings labor supply and demand into equilibrium.
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ideal labor market
risō-tekina rōdō ichiba
理想的な労働市場
… …
An economics textbook says - Four explanations for long-run unemployment:
-1- frictional unemployment
-2- minimum wage laws
-3 - unions and collective bargaining
-4- efficiency wages
What other conditions and situations could be explanations?
ChatGPT:
Other explanations usually fall under structural unemployment, meaning workers and available jobs do not match well even when the economy is not in a recession.
-Skill mismatch: Workers may not have the skills employers now need, especially after technology, automation, or industry change.
-Geographic mismatch: Jobs may be available in one region, but unemployed workers live somewhere else and cannot easily move.
-Occupational licensing and regulation: Some jobs require licenses, certifications, or legal permissions, which can keep people from entering certain occupations quickly.
-High payroll taxes or employer benefit costs: If hiring a worker is expensive because of taxes, health insurance, pensions, or regulations, firms may hire fewer workers.
-Discrimination: Employers may discriminate by age, race, sex, disability, criminal record, or other traits, leaving some willing workers unemployed.
-Information problems: Workers may not know where jobs are, and employers may not know which workers are available or reliable.
-Long-term unemployment effects: The longer someone is unemployed, the harder it may become to get hired because skills weaken, confidence falls, or employers become suspicious of the employment time gap.
-Technological change and automation: Machines, software, or AI may reduce demand for certain types of labor.
-Trade and globalization: Import competition or offshoring can permanently reduce jobs in some industries and regions.
-Seasonal unemployment: Some jobs disappear during certain parts of the year, such as construction, tourism, farming, or holiday retail.
-Demographic changes: Young workers entering the labor force, older workers changing jobs, or immigrants entering the labor market can affect unemployment patterns.
-Benefit and welfare-program design: Unemployment insurance, disability benefits, housing benefits, or other programs can sometimes reduce the urgency to accept low-paying work.
-Weak job creation in certain regions: Some towns or cities may have few growing industries, poor infrastructure, weak schools, or declining business investment.