Journal 3

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JOURNAL 3

Unemployment and Inflation (Chapter 6)

This assignment is associated with the learning outcome relative to understanding affects of unemployment.
Go to Chapter 6 in your textbook and read Application 2 More Disability, Less Employment: Does more liberal disability insurance decrease measured unemployment?
1) Recall the Application. If the federal Disability program leads to a decrease in the labor force participation rate, the ________ will be ________. A) frictional unemployment rate; higher
B) structural unemployment rate; higher
C) measured unemployment rate; lower
D) measured unemployment rate; higher

2) According to this Application, the federal Disability Program has had ________ on the measured unemployment rate. A) a very large effect
B) no effect
C) a negligible
D) an inconsequential effect

3) Recall the Application. Assume 5,000 unemployed workers left the workforce to participate in the federal Disability Insurance program, leaving the size of the labor force at 195,000. If 13,000 workers remain unemployed and in the labor force, what was the unemployment rate before and after the 5,000 unemployed workers left the workforce? A) 9.0 percent; 6.7 percent

B) 6.5 percent; 2.3 percent
C) 12.8 percent; 4.3 percent
D) 38.5 percent; 27.8 percent

4) Individuals who are not working and are not actively looking for work are counted as unemployed if they have looked for work in the past. A) True
B) False

5) Disability payments replace a higher fraction of the wages of low-wage workers than of high-wage workers. Overall, average disability payments rise with the average wage. Suppose wages of low-skilled workers fell sharply relative to high-wage workers. How would this affect the incentives to enter disability for low-wage workers? Explain your answer.

If wages of low-skilled workers fell sharply relative to high-wage workers this would affect the incentives to enter disability for low-wage worker in a good way....
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