7. The Labor Market Flashcards
1
Q
Wage determination
A
w=P^e F(u,z)
P^e= expected price level
u= unemployment rate (increase in unemployment rate decreases wage)
z= variable that stands for all the other factors -un insurance, un benefits, increase in the min wage, employment protection etc (increase in z increases wages)
2
Q
Price determination
A
P=(1+m)W
3
Q
Equilibrium in the labor market
A
Real wage chosen in WAGE SETTING EQUALS real wage implied by PRICE SETTING
•Natural rate of unemployment - the equilibrium unemployment rate Un
•Natural level of output - the output associated with the natural level of unemployment
