Ten Principles of Economics - Part 58. 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. | CHAPTER 26 UNEMPLOYMENT AND ITS NATURAL RATE 589 disadvantaged groups escape poverty. Advocates of these programs believe that they make the economy operate more efficiently by keeping the labor force more fully employed and that they reduce the inequities inherent in a constantly changing market economy. Critics of these programs question whether the government should get involved with the process of job search. They argue that it is better to let the private market match workers and jobs. In fact most job search in our economy takes place without intervention by the government. Newspaper ads job newsletters college placement offices headhunters and word of mouth all help spread information about job openings and job candidates. Similarly much worker education is done privately either through schools or through on-the-job training. These critics contend that the government is no better and most likely worse at disseminating the right information to the right workers and deciding what kinds of worker training would be most valuable. They claim that these decisions are best made privately by workers and employers. UNEMPLOYMENT INSURANCE One government program that increases the amount of frictional unemployment without intending to do so is unemployment insurance. This program is designed to offer workers partial protection against job loss. The unemployed who quit their jobs were fired for cause or just entered the labor force are not eligible. Benefits are paid only to the unemployed who were laid off because their previous employers no longer needed their skills. Although the terms of the program vary over time and across states a typical American worker covered by unemployment insurance receives 50 percent of his or her former wages for 26 weeks. While unemployment insurance reduces the hardship of unemployment it also increases the amount of unemployment. The explanation is based on one of the Ten Principles of Economics in Chapter 1 People respond to .
