A Classroom Unemployment Compensation Experiment

This classroom experiment demonstrates how unemployment compensation can affect unemployment rates and wages. Students take the roles of workers and employers who use double oral auction labor markets to negotiate employment contracts. The instructor takes the role of a government that offers progressively higher levels of unemployment compensation. The experiment generates data that students can analyze to test the general predictive power of economic theory. Students also use their data to test the specific hypothesis that higher unemployment compensation increases the unemployment rate and causes wage compression.