Chapter 7 Definition Sheet - Natural rate of unemployment: the average rate of unemployment around which the economy fluctuates - Rate of job separations: s = fraction of unemployed workers that become separated from their jobs - Rate of job finding: f = fraction of unemployed workers that find jobs - Steady State: labor market is in long run equilibrium if the unemployment rate is constant - Frictional Unemployment: caused by the time it takes workers to search for a job - Sectoral Shifts: changes in the composition of demand among industries or regions - Gov’t Employment Agencies: disseminate info about job openings to better match workers & jobs - Public job training programs: help workers displaced from declining industries get skills needed for jobs in growing industries - Unemployment Insurance: pays part of a worker’s former wages for a limiting time after losing his/her job - Structural unemployment: the unemployment resulting from real wage rigidity and job rationing - Cyclical Unemployment: people are unemployed because the economy is functioning below its productive capital; unemployment due to business cycles - Full Employment: reached if all the unemployment is frictional or structural;there is no cyclical unemployment - Discouraged Workers: unemployed people who cannot find jobs and leave the labor force - Income Effect: higher income (wages) makes people work less, because greater income means workers can have more leisure- Substitution Effect: higher income makes workers work even more, because the reward for an additional work hour has risen - Wage Rigidity: the failure of wages to adjust to equilibrate labor supply and labor demand- Insiders: employed union workers whose interest it is to keep wages high- Outsiders: unemployed non-union workers who prefer equilibrium wages, so there would be enough jobs for them- Efficiency Wages: Theories of real-wage rigidity and unemployment according to which firms raise labor productivity and profits by keeping real wages above the equilibrium