Chapter 5. Unemployment

KEY TERMS

adverse selection of wage cuts argument
if employers reduce wages for all workers, the best will leave
cyclical unemployment
unemployment closely tied to the business cycle, like higher unemployment during a recession
discouraged workers
those who have stopped looking for employment due to the lack of suitable positions available
efficiency wage theory
the theory that the productivity of workers, either individually or as a group, will increase if the employer pays them more
frictional unemployment
unemployment that occurs as workers move between jobs
implicit contract
an unwritten agreement in the labor market that the employer will try to keep wages from falling when the economy is weak or the business is having trouble, and the employee will not expect huge salary increases when the economy or the business is strong
insider-outsider model
those already working for the firm are “insiders” who know the procedures; the other workers are “outsiders” who are recent or prospective hires
labor force participation rate
this is the percentage of adults in an economy who are either employed or who are unemployed and looking for a job
natural rate of unemployment
the unemployment rate that would exist in a growing and healthy economy from the combination of economic, social, and political factors that exist at a given time
out of the labor force
those who are not working and not looking for work—whether they want employment or not; also termed “not in the labor force”
relative wage coordination argument
across-the-board wage cuts are hard for an economy to implement, and workers fight against them
structural unemployment
unemployment that occurs because individuals lack skills valued by employers
underemployed
individuals who are employed in a job that is below their skills
unemployment rate
the percentage of adults who are in the labor force and thus seeking jobs, but who do not have jobs

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UH Macroeconomics 2022 Copyright © by Terianne Brown and Cynthia Foreman is licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted.

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