Chapter 23 Flashcards
When does the Bureau of Labor stats officially classify someone as being employed?
When are potantial workers classified as being unemployed?
Total pop?
Potential workers?
Labour force?
- potentil workers are defined as civilian non-instituional population aged 16 and older. Those holding a paid full time or a part-time job are classified as employed.
- Those without a paid job who actively looked for work in the prior 4 weels and are currently available for work- are unemployed.
Total pop= potential workers + rest
Potential workers: Labor force + rest
Labor force= unemployed + employed
What is the unemployment rate? What is labor force participation rate?
-the unemployment rate is the percentage of the labor force that is unemployed. It fluctuates significantly over time. It is higher during and in the immediate aftermath of a recession.
100* (unemployed/labor force)
L force participation rate: 100* (L force/potential workers)
Who makes up the labor force?
unemployed and employed workers, the rest of the potential workers are classified out of the labor force
How is employment determined ? Why are they upward or downward sloping?
-Employment is determined by labor demand and labor supply.
- The labor demand curve is is downward-sloping because of the diminishing marginal product of labor and profit maximization by firms.
- the value of the marginal product decreases as the number of workers employed increases=each additional worker creates less marginal output
-The supply curve tends to be upward-sloping, because higher wages generally encourage workers to supply more hours to the labor market. (at a sufficiently high wage L supply curve becomes vertical). It changes slpe when wage changes.
How much worker will a profit maximising firm hire?
-it will hire the amount of labor that makes the value of the marginal product of labor equal to the market wage
Marginal benefit > marginal cost
Marginal wage=MPL
Shifters of labor demand curve (4)
1) changing output prices (value of the marginal product of L changes)
2) changin demand for the output (impacts the MPL)
3) changing technology => increases MPL (technological progress and increase in technology typically shifts the L demand curve to the right)
4) changing input prices (when the cost of these other factors go down => increase in MPL => shift L demand curve to the right)
Shifters of labor supply curve (3)
1) changing tastes (ex: right shift => women’s entry into the labor market)
2) changing opportunity cost of time => technology-induced change in the opportunity cost of time (ex: vacuum cleaners are time savers)
3) changing population: increase of potential workers
What is the charecteristic of the eqm? What are the characteristics of a competitive labor market?
- nobody would benfit by changing his/her behavior
- market clearing wage: the quantity of labor demanded matches the quantity of labor supplied
- workers know the market clearing wage
- verly little unemployment because at the market-clearing wage everyone can find a job
- workers who are not willing to work at the market-clearing wage will stop searching and will not be counted as unemployed
What is voluntary unemployment?
-willing to work but only for a wage above the market-clearing wage
Why does frictional unemployment arise?
- time-consuming logistics of finding a job (applying+interview) => imperfect information about available jobs and from the time-consuming process of job search
- process of changing jobs
What is wage rigidity?
-refers to the condition in which the market wage is held above the eqm that would clear the labor market
What is structrul unemployment? What causes structural unemployment? (4)
-structural unemployment arises when the market wage is above the market-clearing level causing the quantity of labor supplied to persistently exceed the quantity of labor demanded (often reffered to as wage rigidity)
1) minimum wage laws (those whose opportunity cost is below w’ are losers)
=> G: L supply and D with minimum wage
2) Labor unions and collective bargaining (org. of workers that advocates, they use the threat of strike)
3) efficiency wages: are wages above the lowest pay that workers would accept, employees use them to increase motivation and productivity
4) downward-wage rigidity = workers are highly averse to reductions in their wage (G: downward-rigid wage and unemployment). This prevents wages from immediately falling in response to a leftward shift of the labor demand curve.
What is the most important cause of labor fluctuations?
- shifting labor demand curve
- when wages are flexible, a shift to the left ot the L demand curve reduces employment and wages, but does not increase unemployment because the labor market clears. When wages are rigid, the same leftward shift creates a larger decline in employment because the wage does not decline and as a result unemployment increases.
What is cyclical unemployment?
-unemployment is higly cyclical, increasing during recessions and declining during economic expansions. Its a derivation of the unemployment rate from its natural rate. (includes frictional and long-term structural unemployment). Negative during recessions and positive during economic booms.
G: cyclical variation in the rate of unemployment.
What is the natural rate of unemployment?
-rate around which the actual rate of unemployment fluctuates = long-term average rate of unemployment
