Question

Assume that the U.S. is considering a federal law that prevents employers from terminating or laying employees without "just cause"such as fraud or theft.  That is, even if the company wanted to produce different goods than before (and it did not "'need" the employee) or there was an economic slowdown or technological change rendered the employee's skills redundant or not needed or the employer wanted to hire another (substitute) worker at a lower wage or salary, the employer would not be able to lay off the worker (or only upon a very high financial penalty).  In short, once an employee is hired by a business, it is very difficult and costly to lay off that employee.  You may or may not think that this is a good proposal but regardless of your "normative" perspective, what, if anything, would you expect to happen to the U.S. natural rate of unemployment and levels of structural unemployment, frictional unemployment and cyclical unemployment if this proposal became law?

Answer 1

nflation index for April 2017 (Unadjusted): 244.524

II. Overall unemployment rate in April 2017 : 4.4%

III. Labor force in April 2017 (L) = 160,213,000

Unemployed (U) = 7,056,000 (or 4.4%)

Discouraged workers (D) = 455,000

Part- time workers (P) = 5,300,000

Unemployment rate if D and P are taken into account = (U+P+D)/L x 100

= 12,811,000 / 160,213,000 x 100

= 7.996 %

IV. Changes in real GDP = 0.7%; changes in real GDP, current dollars = 3%.

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Answer 2

If the said proposal becomes law, it will not bring any difference to frictional employment as frictional unemployment results due to employees moving from one job to another job.

This law would definitely reduce the level of structural and cyclical unemployment. This is because due to this law, no employer can lay off the employees because of economic slow down or technological change. Nor the employer can lay off the employee if the skills of the employee are no longer required by the employer because of change in the product or technological change. Employer has to continue with the employees irrespective of economic slowdown or the skills of the employee no longer of any use. Thus it reduces the structural and cyclical unemployment.

answered by: john