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Econs > 8 Unemployment & Economic Growth > Flashcards

8 Unemployment & Economic Growth Flashcards

1
Q

What does the labor market consist of for supply & demand?

A

Supply - price of labor (real wages)
Demand - qty (employment)

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2
Q

Demand for labor is a derived demand meaning?

A

Strong demand for output by worker means strong demand for labor

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3
Q

2 factors that demand for labor depend on?

A
  1. Productivity of worker
  2. Price of worker’s output

Both increase - increase employment

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4
Q

What is diminishing returns to labor?

A

Assuming non-labor (factories & machines) inputs held constant - adding one worker increases output but by LESS than the previous worker added

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5
Q

What is Value of Marginal Product (VMP)? Formula?

A

Extra revenue that an added worker generates

(Demand for labor)

Marginal product x Price

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6
Q

Hire when MB (VMP) >/= MC (wage). The lower the wage, the more workers employed. True or False?

A

True - Demand curve for labor. Employment (x), wage (y)

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7
Q

What to do if want more employment and let workers have higher wage?

A

Shift labor demand to the right. 2 factors that determine demand (VMP) for labor:
- Price of company’s output
- Productivity of workers

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8
Q

What is reservation wage?

A

Lowest wage a worker would accept for a given job

Opportunity cost - leisure time (to take up job, wage must be as valuable as leisure u enjoy)

Other things equal, higher wage induces individuals to supply longer working hours (higher wage $10 - more costly leisure $15 - indiv need supply longer working hours)

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9
Q

What is the aggregate labor supply?

A
  1. Size of working age population
    -domestic birthrate
    -immigration and emigration
    - ages when people enter workforce and retire
  2. Share of working-age population willing to work
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10
Q

Why is supply of labor upward sloping curve?

A

Higher wage, more people willing to work

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11
Q

What causes shift in labor supply? 2 factors

A
  1. Increase in working-age population
    - baby boom
    - higher net immigration
    - increasing age at retirement
  2. Increase in share of working-age population willing to work eg women
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12
Q

What is the effect of productivity change?

A

Increases demand for labor - demand curve shifts right - real wage and employment increases

Productivity increases due to technological progress & increase in capital (machines)

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13
Q

Effects of Globalization?

A

Expansion of markets to worldwide supply

Benefits: increased specialization and efficiency

Disadv: some goods produced domestically no longer competitive

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14
Q

When wages in importing industries fall and wages in exporting industries rise, wage inequality increases or decreases?

A

Increases - low-skill industries face the toughest international competition

Technological change can also be a source of increasing wage inequality - favoring higher-skilled workers

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15
Q

What is worker mobility?

A

Movement of workers between jobs, firms, industries

Eg market incentives move workers out of textiles and into software

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16
Q

What does skill-biased technological change affect?

A

It affects the marginal products of higher-skilled workers differently from lower-skilled workers

Demand for unskilled workers decrease/ skilled workers increase

Wages & unemployment decrease/ increase

17
Q

3 classifications of unemployment?

A
  1. Employed (16+ age)
  2. Unemployed (willing and able to work, spent time searching but still no job)
  3. Out of labor force (choose not to work)
18
Q

Formulas for
1. Labor force
2. Unemployment rate
3. Participation rate

A
  1. Labor force = employed + unemployed
  2. Unemployment rate = (unemployed/labor force) x 100%
  3. Participation rate = (labor force/working age population) x 100%

*working age population = labor force + not in labor force

19
Q

3 costs of unemployment?

A
  1. Economic costs
    - lost wages and productivity, decreased taxes and increased transfers
  2. Psychological costs
  3. Social costs
20
Q

Does long-term or short-term unemployment have higher cost?

A

Long-term - may lead to permanent unemployment

Short-term - can rely on savings then find permanent job - job may be better fitting and match workers’ ability which is beneficial

21
Q

What are discouraged workers?

A

Would like to have a job but have not looked for work in the past 4 weeks

Counted as out of labor (willing and able but gave up on job search)

Could be counted as unemployed but are not

22
Q

What are involuntary part-time workers?

A

People who like to work full-time but cannot find a full-time job

Counted as employed

23
Q

3 types of unemployment? and what are each about?

A
  1. Frictional unemployment - workers are between jobs eg just graduated (may increase economic efficiency if find a job that allows u to contribute more)
  2. Cyclical unemployment - increase during recession (longer time, more economic costs aka decline in real GDP)
  3. Structural unemployment - long-term, chronic unemployment in well-functioning economy eg lack of skills, language barriers, discrimination (results in high economic, psychological, social costs)

Barriers to employment: minimum wages, unions, unemployment insurance

24
Q

How does setting minimum wage laws (structural barriers) affect unemployment?

A

Setting it above equilibrium creates surplus of people (people wiling to work > people employed)

Once wage is fixed - will forever have surplus

25
Q

Benefits & Costs of labour union?

A

Benefits: reduced worker exploitation, increase productivity

Costs: increase labour costs and introduces inefficiency, increase labor supply in non-labor sector, decreases wages for non-union workers

26
Q

What are the x & y-axis for employment demand & supply curve? Curve or straight line graph?

A

(x) employment
(y) wage

Curved

27
Q

What are unemployment benefits & government regulations?

A

Unemployment benefit is a GOVERNMENT TRANSFER to unemployed workers

-reduce costs of unemployment
-however may be exploited since unemployed have an incentive to search longer and less intensely
-hence unemployment benefits shd be for limited time and less than income received when working

28
Q

What is economic growth? Formula?

A

% change in real GDP

  • real GDP of economies tend to increase over time due to improvement in technology & increase in qty & quality of resources
29
Q

Does small growth in GDP per capita have small or very large effect over a long period?

A

Large effect (small increase in interest rate can have huge effect eg in compound interest)

30
Q

Formula for Years to Double?

A

72 / interest rate

(Number of years for an initial amount to double)

Higher the growth rates, shorter time needed to double amt

31
Q

Formula for GDP per capita?

A

GDP per capita = output per worker x share of total population working

Y = real GDP
N= no. of people employed
POP = population

(Y/POP) = (Y/N) x (N/POP)

32
Q

Understanding growth - when does GDP per capita increase?

A

Output per worker (Y/N) increases (more common reason) OR

Share of population employed (N/POP) increases

33
Q

In the long run, increases in output per person arise primarily from INCREASES or DECREASES in average labor productivity?

A

Increases

34
Q

What are the 6 determinants of average labor productivity?

A
  1. Human capital (talents, education, training)
  2. Physical capital (machines and factories to produce - but may have diminishing returns to capital)
  3. Land (farming) and other natural resources
  4. Technology (single most impt source of productivity improvement - growth seen in industries that produce technology & industries that use them)
  5. Entrepreneurship and management
  6. Polititcal and legal environment
35
Q

3 ways to promote growth?

A
  1. Human capital (govt support education & training programs - positive externalities)
  2. Savings & Investment (CPF, govt can invest directly in capital formation)
  3. Research & Development (R&D)
36
Q

Why do countries need institutions to support growth? (hint: promoting economic growth in least developed)

A
  1. Corruption
  2. Regulation discourages entrepreneurship
  3. Taxes discourage risk-taking
  4. Lack of political stability discourages foreign investment
37
Q

Costs of economic growth?

A

Opportunity cost of producing more CAPITAL goods is fewer CONSUMER goods

  • reduced leisure time
  • possible risks of health & safety from rapid capital production
  • cost of R&D to improve technology
  • cost of education to develop and use new capital
38
Q

Why growth may not be sustainable?

A
  1. Depletion of some natural resources
  2. Environmental damage & global warming
  • Can promote SUSTAINABLE growth through technology & market system (higher income pay for better production method to promote environmental quality)

Econs (8 decks)

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