Answer to Question #143780 in Macroeconomics for Bakary S Dibba

Question

Suppose that the Indonesian Parlement passes legislation making it more difficult for firms to fire workers. (An example is a law requiring severance pay for fired workers.) If this legislation reduces the rate of job separation without affecting the rate of job finding, how would the natural rate of unemployment change? Do you think it is plausible that the legislation would not affect the rate of job finding? Why or why not?

Answer 1

The aim of every firm is to make profits in their business activities,therefore they ensure that the cost of their output is higher than the cost of their input.They employ workers for them to provide human power to enhance running of their activities.Due to rise and fall of demand of products and services the firms may decide to employ or fire workers at times.

Due to this the government may impose legislation to protect the workers from loosing their jobs.This in turn ensures reduced unemployment cases in country.This greatly affects the firms since they end incurring higher costs in production leading to losses.

This therefore can not affect the rate of unemployment since the firms may tend not to employ more workers due to fear of losses and they maintain reasonable number of employees throughout.

The rate of unemployment thus doesn't change.