[Employment and Unemployment] Suppose a country has a working-age population of 500 people. The demand and supply functions of its labor market are: w=300-0.5L w=60+0.1L where w is the wage, L is the quantity of labor. The labor market has search friction so that those that are looking for a job may not immediately find one even when there are openings. Specifically, Assume the number of job matches (i.e. employment) is given by: 0.8L (a) Find the equilibrium wage and the actual number of employed people. Calculate the labor force participation rate and unemployment rate. (b) The COVID-19 pandemic lowers the labor demand, and the new labor demand becomes w=240-0.5L. Assume that the wage can adjust quickly, find the equilibrium wage and the actual number of employed people during the pandemic. (c) Briefly explain in words, and with a specific example of each, the difference between structural and frictional unemployment.
E1
3. [Employment and
people. The
w=300-0.5L w=60+0.1L
where w is the wage, L is the quantity of labor. The labor market has search friction so that
those that are looking for a job may not immediately find one even when there are openings.
Specifically, Assume the number of job matches (i.e. employment) is given by: 0.8L
(a) Find the equilibrium wage and the actual number of employed people. Calculate the
labor force participation rate and unemployment rate.
(b) The COVID-19 pandemic lowers the labor demand, and the new labor demand becomes
w=240-0.5L. Assume that the wage can adjust quickly, find the equilibrium wage and the
actual number of employed people during the pandemic.
(c) Briefly explain in words, and with a specific example of each, the difference between
structural and frictional unemployment.
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