Question

With its tradition of a job for life for most citizens, an once had a much lower unemployment rate in that of the United States; from 1960 to 1995, the unemployment rate in Japan exceeded 3% only once. However, since the crash of its stock market in 1989 and slow economic growth in the 1990s, the job-for- life system has broken down and unemployment rose to more than 5% in 2003. a. Explain the likely effect of the breakdown of the job- for-life system in Japan on the Japanese natural rate of unemployment. b. As the accompanying diagram shows, the rate of growth of real GDP picked up in Japan after 2001 and before the global economic crisis of 2007-2009. Explain the likely effect of this increase in real GDP growth on the unemployment rate. Was the likely cause of the change in the unemployment rate during this period a change in the natural rate of unemployment or a change in the cyclical unemploy- ment rate? Real GDP growth rate 3% 2.7% 2.2% 1.9% 1.8% 1.4% 0.2% 0.3% 2001 2002 2003 2004 2005 2006 2007 Year Data from: OECD.

Answer 1

Solution luon These are & 3 components of unemployment, named aus Stouctural, frictional & cyclical unemployment, A natural rate of unemployment is achieve when cyclical unemployment becomes zero. Hence, natural soute of unemployment comes down & it was lowest when job for lite system was followed in the country of Japan. under this system, people once entered in a job, seldom switched to or Searched for a new job quickly so, natural rate of unemplou ment increased sharply as a Consequence of the fall of job for life system A higher GDP growth with create new employment Opportunities & unemployment will come down. But Only cyclic unemploymen can be cuminated due to the higher GPP growth 30, natural rate of unemployment will always exit in the economy even at a B

higher GDP growth rate I So, it is the change in natural date of unemployment that led to the higher unemployment rate as change in natural rate of unemployment took place due to the Job Searching tendencies among the people of Japan.