If the steady-state rate of unemployment equals 0.125 and the fraction of unemployed workers who...
Question:
If the steady-state rate of unemployment equals 0.125 and the fraction of unemployed workers who find jobs each month (the rate of job findings) is 0.56, then the fraction of employed workers who lose their jobs each month (the rate of job separations) must be:
a) 0.08
b) 0.125
c) 0.22
d) 0.435
Bathtub Model of Unemployment:
The bathtub model of unemployment is a simple model of unemployment flows and equilibrium. In this model, there are two relevant flows: one is from unemployed to employment and the other one is from employment to unemployment.
Answer and Explanation: 1
The answer is a)
In the steady state, the flow of people from employment to unemployment is the same as the flow of unemployment to employment. Let U denote the unemployment rate, F represent the job finding rate, S represents the separation rate, then we have:
- U * F = (1 - U) * S
- 0.125 * 0.56 = (1 - 0.125) * S
- S = 0.08
That is, the separation rate is 0.08.
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Why the Unemployment Rate Decreases and Increases
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Chapter 6 / Lesson 2
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Unemployment rates are an important indicator of the economy. This lesson will explore what defines unemployment, why unemployment rates change, the way unemployment is calculated, and look at the three types of unemployment.
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