Page 170 - Krugmans Economics for AP Text Book_Neat

2000, when the unemployment rate was only 4%. Forty-five percent of the unemployed
Structural unemployment is
had been unemployed for less than 5 weeks and only 23% had been unemployed for 15
unemployment that results when there are
or more weeks. Just 11% were considered to be “long - term unemployed”—unemployed
more people seeking jobs in a labor market
than there are jobs available at the current for 27 or more weeks. The picture looked very different in January 2010, after unem-
wage rate. ployment had been high for an extended period of time.
In periods of higher unemployment, workers tend to be jobless for longer periods of
time, suggesting that a smaller share of unemployment is frictional. By early 2010,
when unemployment had been high for several months, for instance, the fraction of
unemployed workers considered “long -term unemployed” had jumped to 41%.

Structural Unemployment
Frictional unemployment exists even when the number of people seeking jobs is equal
to the number of jobs being offered—that is, the existence of frictional unemployment
doesn’t mean that there is a surplus of labor. Sometimes, however, there is a persistent sur-
plus of job -seekers in a particular labor market. For example, there may be more workers
with a particular skill than there are jobs available using that skill, or there may be more
workers in a particular geographic region than there are jobs available in that region.
Structural unemployment is unemployment that results when there are more people
seeking jobs in a labor market than there are jobs available at the current wage rate.
The supply and demand model tells us that the price of a good, service, or factor of
production tends to move toward an equilibrium level that matches the quantity sup-
plied with the quantity demanded. This is equally true, in general, of labor markets.
Figure 13.2 shows a typical market for labor. The labor demand curve indicates that
when the price of labor—the wage rate—increases, employers demand less labor. The
labor supply curve indicates that when the price of labor increases, more workers are
willing to supply labor at the prevailing wage rate. These two forces coincide to lead to
an equilibrium wage rate for any given type of labor in a particular location. That equi-
librium wage rate is shown as W E .
Even at the equilibrium wage rate, W E , there will still be some frictional unemploy-
ment. That’s because there will always be some workers engaged in job search even when
the number of jobs available is equal to the number of workers seeking jobs. But there
wouldn’t be any structural unemployment in this labor market. Structural unemployment

figure 13.2

The Effect of a Minimum Wage
rate
Wage on the Labor Market Labor supply
When the government sets a minimum
Structural
wage, W F , that exceeds the market
unemployment
equilibrium wage rate, W E , the number of
workers, Q S , who would like to work at that
minimum wage is greater than the number W F
of workers, Q D , demanded at that wage rate. Minimum
This surplus of labor is considered structural wage
unemployment. E
W E

Labor demand
Q D Q E Q S Quantity of labor

128 section 3 Measurement of Economic Performance