Chapter 2 - Labour Market Flashcards
Labour force
employed + unemployed
Unemployment rate
Unemployed / Labour force
Frictional u
In between jobs
Structural u
Result of changes in patterns in the economy
Demand deficient u
Low demand for particular good resulting in less jobs
Classical u
Real wages are above equilibrium level
6 properties of a perfectly competitive market
- Large number of buyers and sellers
- Homogenous products
- No barriers to entry
- Perfect knowledge
- Profit max firms
- Complete contracts
Price taker
The workers/labour suppliers are the price takes. A supplier that can’t change the market price by changing output.
Wage taker
A firm that can’t change the market wage of its own will.
Production general formula
y=af(k,n)
k is capital
n is labour
a is technology
Marginal product of labour
∂y/∂n
Employment rent
Cost of job loss
Efficiency wage
A wage that is deliberately set above the market clearing wage in order to increase their productivity or reduce costs associated with labour turnover
Wage Setting Curve
A curve showing the real wage that an employer needs to pay in order to secure adequate worker effort at a given level of unemployment
Price setting curve
A curve showing the real wage that makes production, and hence the employment of workers, profitable for a price-setting firm
Mark up
A firms profit margin on a product as a proportion of it’s price.
For example the profit margin on an apple is 2p and it costs 20p so the mark up is 10%
Nominal rigidity
Sticky wages. Wages and prices do not adjust immediately to fluctuations in aggregate demand to keep the economy at equilibrium employment.
Wage round
A periodic negotiation for pay rates between a firm and its employees (assuming this is done yearly)
