Answer to Question #121761 in Macroeconomics for Zain

Question

Consider each of the following labor‐market developments. In each case, indicate whether the event raises or lowers the natural rate of unemployment, and whether that effect arises because of a change in the amount of frictional unemployment or because of a change in the amount of structural unemployment.
a) More firms start paying “efficiency wages.”

Answer 1

Efficiency wages are wages paid voluntarily to increase production. It lowers the natural rate of unemployment due to change in the amount of frictional unemployment. Efficiency wages stimulates workers' output as well as reduces the chances of them shifting from one job to another