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Flashcards in chapter 10 Deck (36):

Value Marginal Product (VMP)

The Marginal Product of a
worker multiplied by the price of the output


human capital

Education and training


Screening theory

education and
training may be valuable to the individual, not because the training increases productivity, but because it
points out which employees will be good.


Make Work Fallacy

The idea that jobs have value, regardless of whether the
labor actually creates value


establishment survey

Government asking large businesses about how many employees are on their payroll, to measure the number of jobs the economy is creating.


The BLS household survey asks

individuals about their employment status by telephone.


The unemployment rate is

unemployed / civilian labor force


The Labor Force Participation Rate (LFPR)

Labor Force / CNIP

It measures how many people
are interested in holding a job.


Discouraged workers

are those who have looked for a job at some time during the previous 12 months,
but are no longer looking because they think no jobs are available.


Frictional unemployment

occurs because of the normal workings of the labor force with people changing
jobs and entering the labor force with the skills that will likely soon yield a job.


Structural unemployment

is a longer term problem which occurs due to changes in the labor force that
render some skills obsolete


Cyclical unemployment

is what we usually think of as unemployment—it arises due to contractions that
occur during the business cycle


Full employment is

When there is no cyclical unemployment. This means that a fully employed
economy has some frictional and structural unemployment.


True False: the employer will hire an extra employee if his/her marginal product is positive

F the employer will hire an employee if the value of the marginal product is greater than the cost of having the employee


average wage and average benefits in the US

average wage: $20

Average Benefits:$10


True False: the labor supply curve gets its shape from the Law of diminishing returns.

F the labor supply curve gets its shape from

-the alternative value of the employees time

-the principle of optimal arrangement


True False: at any wage the employee is willing to work for all the hours that the employer will offer

F at any wage there is a particular amount of labor supplied, that will only be equal to the amount of labor demanded at the equilibrium


Social welfare programs.....

lower the supply of labor, causing wages to rise and unemployment to rise


difference between screening theory and human capital theory

HCT says education makes a worker more productive ST says that education only points out which workers are already productive


how does capital help productivity?

makes labor more productive increases the demand for labor


True False: the age of railroads resulted in high unemployment rates as many transportation workers lost jobs

F more jobs were created as transportation costs fell


effect of minimum wage laws

More workers willing to work but less workers being hired causing unemployment


how establishment survey differs from household survey

establishment only asks employers about payroll not self employed people


who is not in the civilian non-institutional population

people under 15
in the military
in an institution


how many hours of work in a week makes you employed?

1 for pay or profit 15 for unpaid family business


who is considered unemployed?

anyone with no job who has made effort within the last 4 weeks


high unemployment rate



great depression highest unemployment rate

24% since then 11%


people in CNIP but not in the labor force

stay at home parents, reitred, some students, bums


major cause of teen unemployment today

large increases in the minimum wage


trends in LFPR (men and women)

LFPR is down for both men and women it has fallen for men for decades but was climbing for women until the 2009 recession


what is U-6?

unemployment rate that counts discouraged workers and those working part time that would like to be full time.


what is full employment percentage



what is true of PPF if we have a surplus of labor

surplus of labor is unemployment which means it is below the curve


what did keynes say about labor markets that was different than classical econ?

labor surpluses can last a long time becasue wages refuse to fall


what 2 reasons did keynes give for wages refusing to fall

labor contracts which prevent employers from cutting wages

People mistake nominal wage cuts with real wage cuts.