Chapter 28

This chapter was about unemployment. The unemployment rate is the percentage of those who would like to work and are actively searching, but cannot get jobs. However, the unemployment rate is an imperfect measure of joblessness. This is because some people who call themselves unemployed may actually not want to work, and some people who would like to work have left the labor force after an unsuccessful search and therefore are not counted as unemployed. Most unemployed find work within a short period of time. There are a couple reasons for unemployment. It takes time for workers to find job that best suit their tastes and skills. The economy will always have some unemployment due to minimum wage laws because they raise the amount of labor supplied and decrease the demand for labor. This creates a surplus of labor. Also, unions also increase the wages above the equilibrium, creating a surplus. This chapter introduces the idea of efficiency wages. Based on this theory, firms find it profitable to pay wages above the equilibrium level. High wages improve worker health, lower worker turnover, raise worker quality, and increase worker effort.