Question

Suppose the world price of steel rises substantially. The demand for labor among steel-producing firms in Pennsylvania will increase. The demand for labor among automobile-producing firms in Michigan, for which steel is an input, will decrease. The temporary unemployment resulting from such sectoral shifts in the economy is best described as frictional unemployment.Suppose the government wants to reduce this type of unemployment. Which of the following would help achieve this goal?a. Increasing the benefit offered to unemployed workers through the government's unemployment insurance programb. Improving a widely used job-search website so that it matches workers to job vacancies more efficientlyc. Taxing the price of placing a resume or posting a job opening on a job-search website

Answer 1

Answer:

b. Improving a widely used job-search website so that it matches workers to job vacancies more efficiently.

Explanation:

• While the correct answer may help unemployees and companies to find each other faster, the other two options, can increase unemployment instead of reducing it.

• Option a (increase unemployment insurance), may provide an incentive to stay unemployed, because it increases the opportunity cost of a job: the unemployed compares the salary he can get in the market with the unemployment insurance to know what decision to make. When unemployment insurance increases he/she would find more attractive to reject some job proposals which salaries are lower than the new unemployment insurance, keeping them as unemployed.
• Option c (Taxing the price of placing a resume or posting a job opening on a job-search website) may also increase unemployment by increasing the cost of searching for a job. Those people who cannot afford placing a resume at the new price (which will be higher than the price before the tax imposition), would probably remain unemployed longer.