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Some economists conclude, from that the bath-tub model, that an increase in firing costs increases the...

Some economists conclude, from that the bath-tub model, that an increase in firing costs increases the natural unemployment rate--explain how that conclusion is derived.

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Answer #1

Natural rate of unemployment under the bathtub model is the ratio of rate of separation to the sum of rate of separation and rate of job finding. U = s/(s + f)

When there is an increase in the firing cost, rate of job separation decreases. This is because employers will not fire their workers easily. This also implies that the rate of job finding will decline because when workers are not fired they will not be hired also. When job separation rate and job finding rate decrease, value of the denominator relatively decreases and the overall fraction increases.

This indicates that the natural rate of unemployment will increase.

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