6. The natural rate of unemployment is is given as where U is the number of L st

Question

6. The natural rate of unemployment is is given as where U is the number of L stf unemployment people in the total labour force, L; and s is job separation rate for employed people ( E) and f is job finding rate for the unemployed (U),. Using this model, explain how free trade, unions, employment insurance, and minimum wage laws affect the natural rate of unemployment while stating the possible policies (reforms) that could be implemented to mitigate the unemployment impacts of each of the items listed. (10 points)

Explanation / Answer

Ntural rate of unemployment is defined as = (U/L)=(S/S+F)

where L= TOTAL LABOUR FORCE

S= JOB SEPARATION RATE OF EMPLOYED PEOPLE

F= JOB FINDING RATE OF UNEMPLOYED

U= UNEMPLOYEMNET RATE= L x S / (S+F) = L/ (1+F/S)

U increases with increase in L, S and decreses with increase in F

Now the impacts of trade unions, employment insurance and minimum wage law on unemployment and probable policy reforms are as under:

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