The Impact of Firing Costs on Turnover and Unemployment: Evidence from the Colombian Labour Market Reform. Equilibrium Unemployment as a Worker Discipline Device. ” American Economic Review. For full access to this pdf, sign in to an existing account, or purchase an annual subscription. Equilibrium Unemployment as a Worker Discipline Device Created Date: 2752Z.
Unemployment disciplines workers and reduces the wage that firms must pay to prevent shirking. Equilibrium unemployment is too low from the perspective of the profit-maximizing firm because each firm fails to account for the reduction in unemployment imposed by its own hiring. An executive committee for macroeconomic policy can provide discipline as a public good by maintaining higher unemployment to increase collective profits.
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Conceptually, unemployment is the state of an individual looking for a paying job but not having one. As a result, unemployment does not include individuals such as full-time students, the retired, children, or those not actively looking for a paying job. It also doesn't count individuals who work part-time but would like a full-time job. Mathematically, the unemployment rate is equal to the number of unemployed people divided by the size of the labor force. The Bureau of Labor Statistics publishes this basic unemployment rate (known as U-3) as well as a number of related measures (U-1 through U-6) in order to give a more nuanced view of the unemployment situation in the U.S.
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