Assume that the job separation rate s is 0.01 (1%) per month and that the job finding rate f is 0.2 (20%) per month.
Assume that the labor force today (period t = 0) is 100 million.
(a) What is the steady state unemployment rate for this economy?
(b) Given that L = 100 million, what is the steady state number of employed E and unemployed U today in period t = 0?
(c) Assume U.S. immigration policy changed tomorrow (period t = 1) such that we allowed more people to enter the country and L increased to 110 million from its inital value of 100 million. Assume that these new entrants would be unemployed first and then find jobs at the job finding rate f .That is, at time t = 1, the number of unemployed is U1 =U+10 million, and the number of employed equals E1 = E. Create a table (maybe in Excel) that shows how Et , Ut , and Ut=L evolve over time, given s = 0:01 and f = 0:2, starting at t = 1 and ending when the unemployment rate reaches its steady stateU=L rounded to the nearest thousandth (tenth of a percent).
(d) In the table from the previous scenario, how many periods does it take for the unemployment rate to reach its steady state level rounded to the nearest thousandth (tenth of a percent)?