(Problem) Suppose that during 2009, 55 people in your neighbourhood (it could be 55,000 or more) were at some point unemployed: 52 of them were unemployed for one single week and the other 3 for the whole year. 1. On these 55 people, what is the proportion of people having experi- enced a short unemployment spell? a 2. What is the average unemployment spell? 3. Consider the total number of unemployment weeks in the neighbour- hood. What is the share of weeks during which the unemployment spell was short? 4. If there are 100 people living in your neighbourhood, what was the average unemployment rate in it during 2009? (Problem) Suppose the labour market is segmented into two distinct markets: the market for lowskill workers and the market for high-skill work- ers. Further, suppose the competitive equilibrium wage in the low-skill mar- ket is €3/hour while the competitive equilibrium wage in the high-skill mar- ket is €15/hour. 1. If the minimum wage is set at €5/hour, which market will exhibit the greatest amount of unemployment? 2. Does the minimum wage have any impact on the high skill market? Why? 3. According to your model, does this mean that setting a minimum wage is a bad policy? Discuss the issue. 4. Suppose the union defending the interests of the high-skill workers manages to negotiate a wage of €18/hour for them. Will this have any affect on the low-skill market? Explain.
