Unemployment and the Labor Market Suppose that Congress passes legislation making it more difficult for firms to fire workers. One example might be a law requiring severance pay for fired workers. The goal of this legislation is to reduce the rate of job separation without affecting the rate of job finding.
If this legislation reduces the rate of job separation (s) without affecting the rate of job finding (f), how would the natural rate of unemployment change?
1. The natural rate of unemployment will. Why would this change occur? 2. The rate of job separation will decrease, and the average willincrease
Consider whether the legislation might also affect the rate of job finding (f).
3. For any given decrease in s, making it more costly for firms to fire an employee may also a. cause unemployed workers to select a new job more quickly. This would increase f and, if the increase in f is large enough, decrease U/L.
b. make it more costly for firms to hire an employee. This would decrease f and, if the reduction in fis large enough, increase U/L.
c. decrease the spell that employees work for the same employer. This would increaseſ and, if the increase in fis large enough, decrease U/L.
d. cause firms to expect more employee effort for the same pay. This would decrease f and, if the reduction infis large enough, increase U/L.