Which of the following would increase the natural rate of unemployment? an incre
ID: 1202814 • Letter: W
Question
Which of the following would increase the natural rate of unemployment?
an increase in the number of younger, less skilled workers in the economy
a reduction in the generosity of unemployment insurance programs
restrictions on the ability of unions to negotiate wage changes with companies
an increase in government-sponsored programs that train unemployed workers so they can find new jobs quickly
an increase in the number of younger, less skilled workers in the economy
a reduction in the generosity of unemployment insurance programs
restrictions on the ability of unions to negotiate wage changes with companies
an increase in government-sponsored programs that train unemployed workers so they can find new jobs quickly
Explanation / Answer
Natural rate of unemployment is the average rate of unemployment around which the economy hovers around. The natural rate of unemployment depends on the rate of job separation and the rate of job finding. For the government, any policy that increases the natural rate of unemployment must either be increasing the rate of job separation or decreasing the rate of job finding.
Since a reduction in the generosity of unemployment insurance programs, and an increase in government-sponsored programs that train unemployed workers so they can find new jobs quickly increases the rate of job finding , it decrease the natural rate of unemployment. Restriction in union power will also reduce unemployment.
In contrast, an increase in the number of younger, less skilled workers in the economy is likley to decrease the rate of job finding. Hence the answer is A.
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