Macroeconomy - Case Study

Report

Case Study:

1) Unemployment Insurance in America

This program is designed to offer workers protection from job loss. It is only eligible to those who have been previously employed. Also those who quit their jobs, were fired for cause and just entered the labor force are not eligible. Unemployment insurance reduces the hardship of unemployment but also increases the amount of unemployment. This occurs because unemployment benefits stop when a worker takes a new job. This will finally result in unemployed workers devoting less effort to job search, turning down unattractive job offers, and are also less likely to seek guarantees of job security when negotiate over the terms of employment.

Case Study:

An experiment was conducted in Illinois, 1985 to examine the incentive effects of unemployment insurance. A number of participant who applied for unemployment insurance were randomly selected. They were separated into two groups, which was the random group and the control group. The random group were offered a $500 bonus if they found new jobs within 11 weeks. At the end of the experiment, the average time of unemployment for the random group was 7% shorter than the control group.

The conclusion that can be made from this case study is the design of the unemployment insurance system influences the effort that the unemployed take to search for a job.

2) Minimum-Wage Laws

Minimum wage law is the body of law which prohibits employers from hiring employees or workers for less than a given hourly, daily or monthly minimum wage. It has an important effect on certain groups with particularly high unemployment rates. When a minimum-wage law forces the wage to remain above the level that balances supply and demand, it raises the quantity of labor supplied and reduces the quantity of labor demanded compared to the equilibrium level. This causes a surplus of labor to occur because there are more workers willing to work than there are jobs....