9-10

Question 1

Working-age population

Answer 1

individuals aged 15-64

Question 2

Labor Force

Answer 2

those who are of working age and are willing and able to work

Question 3

Participation Rate=

Answer 3

Labor Force/Working age Population

Question 4

Employed

Answer 4

those who are willing to work and have a job

Question 5

Employment rate=

Answer 5

Employed / Labor Force

Question 6

Unemployment rate=

Answer 6

Unemployed / Labor Force
1 - Employment rate

Question 7

MPL

Answer 7

demand curve for labor

Question 8

MPL > real wage

Answer 8

hire more labor

Question 9

MPL < real wage

Answer 9

hire less labor

Question 10

If real wage falls …

Answer 10

firms want to hire more labor

Question 11

If technology improves …

Answer 11

firms want to hire more labor

Question 12

Labor Supply depends on

Answer 12

Demographics
labor force
hours worked by people

Question 13

what is the opportunity cost of working?

Answer 13

time (leisure, education, home work)

Question 14

What is the labor supply sensitive to?

Answer 14

Government policy (income taxes)
Labor market institutions (unemployment benefits)

Question 15

If real wage increases…

Answer 15

• Leisure more expensive (opportunity cost) –> word more attractive –> Labor supply up –> Substitution Effect
• Worker is richer for given amount of work –> work less attractive –> Labor supply down –> Income Effect

Question 16

How is the labor supply in the long run?

Answer 16

Income Effect = Substitution Effect

Question 17

Short run Labor Supply?

Answer 17

Substitution Effect > Income Effect

Question 18

What is labor demand?

Answer 18

firms set the price of the good equal to its marginal cost (MC) of production

Question 19

If we only use labor to produce output

Answer 19

P=MC , P=W/MPL, W/P=MPL

Question 20

When is there no unemployment?

Answer 20

Labor demand = Labor supply

Question 21

When can workers ask Real wage > MPL

Answer 21

• strong bragaining position (monopoly power) –> unions strengthen, very special hard-to-come-by skills, unemployment benefits better
• unemployment rate is los –> finding and hiring a replacement is more costly, vacant positions disrupt workflow

Question 22

Workers ask for the real wage (formula)

Answer 22

W/P = B - c*u

W/P… Real Wage
B… bargaining position
c… influence of u on wage demands
u… unemployment rate

Question 23

Natural rate of unemployment (NRU)

Answer 23

u*= ( B-1 / (1 + m)) / c

m… product market power
c… sensitivity of wage demands to u
B… monopoly power of workers

Question 24

Beveridge Curve

Answer 24

• measures efficiency of the labor market in matching workers with firms
• firms creating vacancies (Labor Demand)
• unemployed workers searching for jobs (Labor Supply)

Question 25

How to lower unemployment?

Answer 25

active labor market spending
- assist the unemployed in job searching
- training to the unemployed
-subsidize the creation of jobs and hiring
- loans to start a business

Question 26

What is the idea of the beveridge curve?

Answer 26

if there are many unemployed and many vacancies at the same time, the matching process cannot be very efficient
–> shift outward: less efficient

Question 27

High Employment Protection Legislation

Answer 27

Harder to lay off worker
- lower probability of losing a job p
- lower unemployment

but if you hire somebody who is not productive, or if your business goes badly?
- lower expected profits
- lower vacancy creation
- lower probability of finding a job f
- higher unemployment