Module 13
Mar 2015
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Job Search – when people spend time looking
for employment
Frictional unemployment – unemployment
due to the time workers spend in a job
search.
◦ Always happening due to job creation and job
destruction
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Structural unemployment is unemployment
that results when there are more people
seeking jobs in a labor market than there are
jobs available at the current wage rate
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Minimum Wage – government mandated price
floor for labor
Labor Unions – have effects similar to minimum
wage as collective bargaining leads to higher
wages
Efficiency wages – wages that employers set
above the equilibrium wage rate as an incentive
for better employee performance
Natural rate of unemployment – is the
unemployment rate that arises from the effects
of frictional plus structural unemployment.
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Cyclical unemployment is the deviation of the
actual rate of unemployment from the natural
rate
Natural unemployment = frictional +
structural
Actual unemployment = natural + cyclical
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Changes in the Natural Rate of
Unemployment happen for several reasons
◦ Changes in labor force characteristics – i.e., baby
boomers, married women
◦ Changes in labor market institutions – people not
joining unions, temporary job agencies,
technological changes
◦ Changes in government policies – high minimum
wage, generous unemployment benefits, jobtraining subsidies