Please help me with this. Thanks ! With its tradition of a Job for life for most

Question

Please help me with this. Thanks ! With its tradition of a Job for life for most citizens, Japan once had a much lower unemployment rate than that of the United States; from 1960 to 1995, the unemployment rate in Japan exceeded 3% only once. However, since the crash of its stock market in 1989 and slow economic growth in the 1990s, the Job-for-life system has broken down and unemployment rose to more than 5% in 2003. Explain the likely effect of the breakdown of the Job-for-life system in Japan on the Japanese natural rate of unemployment. As the accompanying diagram shows, the rate of growth of real GDP has picked up in Japan after 2001 and before the global economic crisis of 2007-2009. Explain the likely effect of this increase in real GDP growth on the unemployment rate. Is the likely cause of the change in the unemployment rate during this period a change in the natural rate of unemployment or a change In the cyclical unemployment rate?

Explanation / Answer

a) The job-for- life system of employment in Japan led to a very low level of frictional unemployment. The only search for jobs occurred when workers first joined the labor force. The low level of frictional unemployment led to a low natural rate of unemployment. Since the stock market crash of 1989 and the slow economic growth of the 1990s, Japan has moved away from the job - for - life system. As some Japanese firms laid off workers who believed they had their jobs for life, it was difficult for many to find new jobs. Consequently, frictional unemployment has risen in Japan, leading to a higher natural rate of unemployment.

b) The increase in real GDP growth should result in a decrease in the unemployment rate in Japan. Indeed, the unemployment rate has dropped from 5.3% in 2003 to 3.9% in 2007. The likely cause of this is a decrease in the cyclical unemployment rate. The increase in real GDP growth indicates that the Japanese economy has expanded during this period

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