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1 Please read the following License Agreement before proceeding.
License Agreement for Use of Electronic Resources The illustrations and photographs in this PowerPoint are protected by copyright. Permission to use these materials is strictly limited to educational purposes associated with the course for which you have adopted Krugman’s Economics for AP®, Second Edition. You may project these materials in lectures, post them on password-protected course websites, include them in course documents, or use them in any other manner that is consistent with their intended use as materials to aid in the teaching of the course for which you have purchased Krugman’s Economics for AP®, Second Edition. The following restrictions apply to materials posted on course websites: The website must be available only to students taking the course for which you have adopted our program or to registered users of your institution’s network. They may not be posted on sites accessible to the general public outside your institution. Please note that this restriction is an IMPORTANT PROTECTION FOR YOU: Copyright holders will seek (and have sought) legal action if you post copyrighted photographs or other materials to open-access sites. If requested, you must provide BFW/Worth Publishers with the URL and password required to access the site. The name of the copyright holder (BFW/Worth Publishers, unless otherwise indicated) must appear with each item at all times. Note: Most of the photos herein are owned by other parties/individuals. The copyright holder is listed with the image. You may not post materials other than in the context of course material for the course for which you have adopted our program. You may not distribute these materials to others not associated with the course for which you have adopted our program. Nor may you use any of the materials in any context other than the teaching of this course, without first receiving written permission from the copyright holder (BFW/Worth Publishers, unless otherwise indicated). In using these PowerPoint slides, you agree to accept responsibility for protecting the copyrights to the materials contained herein. If you have any questions regarding permitted uses of these materials, please contact: Permissions Manager BFW/Worth Publishers 33 Irving Place, 10th Floor New York, NY

2 KRUGMAN’S Economics for AP® S E C O N D E D I T I O N

3 Section 3 Module 13

4 What You Will Learn in this Module
Explain the three different types of unemployment and their causes Identify the factors that determine the natural rate of unemployment What You Will Learn in this Module Section 3 | Module 13

5 The Natural Rate of Unemployment
Workers who spend time looking for employment are engaged in job search. Frictional unemployment is unemployment due to the time workers spend in job search. 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. Section 3 | Module 13

6 The Nature of Unemployment
Distribution of the Unemployed by Duration of Unemployment 2000 and 2010 Section 3 | Module 13

7 The Effect of a Minimum Wage on the Labor Market
Structural Unemployment The Effect of a Minimum Wage on the Labor Market Section 3 | Module 13

8 Structural Unemployment
Minimum wages - a government-mandated floor on the price of labor. In the U.S., the national minimum wage in 2009 was $7.25 an hour. Unions - by bargaining for all a firm’s workers collectively (collective bargaining), unions can often win higher wages from employers than the market would have otherwise provided when workers bargained individually. Section 3 | Module 13

9 Structural Unemployment
Efficiency wages - wages that employers set above the equilibrium wage rate as an incentive for better performance. Side effects of government policies - public policies designed to help workers who lose their jobs; these policies can lead to structural unemployment as an unintended side effect. Section 3 | Module 13

10 The Natural Rate of Unemployment
The natural rate of unemployment is the normal unemployment rate around which the actual unemployment rate fluctuates. The natural rate of unemployment is the unemployment rate that arises from the effects of frictional plus structural unemployment. Cyclical unemployment is a deviation in the actual rate of unemployment from the natural rate. Section 3 | Module 13

11 The Natural Rate of Unemployment
Natural unemployment = Frictional unemployment + Structural unemployment Actual unemployment = Natural unemployment + Cyclical unemployment Section 3 | Module 13

12 Changes in the Natural Rate of Unemployment
Estimates of the natural rate of unemployment show that the U.S. natural rate rises and falls over time. The factors that affect the natural rate of unemployment include: Changes in labor force characteristics Changes in labor market institutions Changes in government policy Section 3 | Module 13

13 Natural Unemployment in OECD Countries
Section 3 | Module 13

14 The Changing Makeup of the U.S.
Changes in the Natural Rate of Unemployment The Changing Makeup of the U.S. Labor Force, 1948–2013 Section 3 | Module 13

15 F Y I Structural Unemployment in Eastern Germany
After reunification, employment in East Germany plunged. The economy of the former East Germany has remained persistently depressed, with an unemployment rate of more than 16% in 2008. East Germany found itself suffering from severe structural unemployment. It became clear that workers in East Germany were much less productive than their cousins in the west. The result has been a persistently large mismatch between the number of workers demanded and the number of those seeking jobs. Section 3 | Module 13

16 Summary Job creation and destruction lead to job search and frictional unemployment. A variety of factors such as minimum wages, unions, efficiency wages, and government policies designed to help laid-off workers result in a situation in which there is a surplus of labor at the market wage rate, creating structural unemployment. The natural rate of unemployment, the sum of frictional and structural employment, is well above zero, even when jobs are plentiful. Cyclical unemployment is the deviation of the actual rate of unemployment from the natural rate. The natural rate of unemployment changes over time. Section 3 | Module 13


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