Ten Principles of Economics - Part 57. Economics is the study of how society manages its scarce resources. In most societies, resources are allocated not by a single central planner but through the combined actions of millions of households and firms. Economists therefore study how people make decisions: how much they work, what they buy, how much they save, and how they invest their savings. Economists also study how people interact with one another. | IN THIS CHAPTER YOU WILL . . . Learn about the data used to measure the amount of unemployment Consider how unemployment arises from the process of job search UNEMPLOYMENT AND ITS NATURAL RATE Consider how unemployment can result from minimum-wage laws Losing a job can be the most distressing economic event in a person s life. Most people rely on their labor earnings to maintain their standard of living and many people get from their work not only income but also a sense of personal accomplishment. A job loss means a lower living standard in the present anxiety about the future and reduced self-esteem. It is not surprising therefore that politicians campaigning for office often speak about how their proposed policies will help create jobs. In the preceding two chapters we have seen some of the forces that determine the level and growth of a country s standard of living. A country that saves and invests a high fraction of its income for instance enjoys more rapid growth in its capital stock and its GDP than a similar country that saves and invests less. An even more obvious determinant of a country s standard of living is the amount of unemployment it typically experiences. People who would like to work but cannot 579 See how unemployment can arise from bargaining between firms and unions Examine how unemployment results when firms choose to pay efficiency wages 580 PART NINE THE REAL ECONOMY IN THE LONG RUN find a job are not contributing to the economy s production of goods and services. Although some degree of unemployment is inevitable in a complex economy with thousands of firms and millions of workers the amount of unemployment varies substantially over time and across countries. When a country keeps its workers as fully employed as possible it achieves a higher level of GDP than it would if it left many of its workers standing idle. This chapter begins our study of unemployment. The problem of unemployment is usefully divided into two categories the long-run
