Answered: You're advising a democratic…

Macroeconomics: Private and Public Choice (MindTap Course List)

16th Edition

ISBN:9781305506756

Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson

Chapter15: Macroeconomic Policy, Economic Stability, And The Federal Debt

Section: Chapter Questions

Problem 5CQ

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Question

You're advising a democratic government, and the leaders ask you about what kind of labor market regulations it should consider. Its only goal--I really mean only!--is to keep the unemployment rate as low as possible.

It's considering a law that would make it expensive to fire workers, in order to reduce the number of workers entering the pool of the unemployed.

According to labor search theory, what effect would this have on the job separation rate? On the job hiring rate? On the average (or steady-state) unemployment rate?

Be sure to answer all three questions, and also answer this fourth question: Can you give this government clear advice to their precise question, or will your answer be a version of "It depends"?

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