chapter 8

Question 1

how old should children be to join the to form part of the labour force?

Answer 1

16 or older

Question 2

what are the problems of estimating the employed and unemployed in South Africa?

Answer 2

1. there are extremely difficult and different measures of employment and unemployment are calculated from time to time
2. if the informal sector is to be regarded as a last resort for those who are unable to find jobs in the formal sector, the employment rate ( labour absorption rate ) of the formal sector can be used to measure the extent of unemployment in South Africa.

Question 3

what happens to the demand for labor when the labor market decreases?

Answer 3

the demand for labour slows down or decreases and workers are likely to lose their jobs and the probability to find a job is lower.

Question 4

what is the purpose of the labor market?

Answer 4

The purpose of this labor market model is to give us an idea of what determines the
supply of goods and services.

Question 5

what are the 2 main considerations of the labor market?

Answer 5

1. labor
2. firms

Question 6

what is the responsibility of firms on the labor market?

Answer 6

Firms are responsible for the production of goods and services and are a major factor in determining the price level

Question 7

what is the summary of the behavior of labor market?

Answer 7

The behavior of labor is summed up in the wage-setting relation; and it is this price and wage setting behavior that determines the supply of goods and services in the economy.

Question 8

what is nominal / money wage?

Answer 8

The nominal or money wage is the amount of money actually received by a worker
per hour, day, week, month or year

Question 9

what’s real wage?

Answer 9

the real wage is the quantity of goods and
services that can be purchased with the nominal or money wage.

Question 10

for a given nominal wage, what does the increase in the general level affects the real wage?

Answer 10

For a given nominal wage an increase in the general price level causes a decline in the
real wage, which means that less can be bought

Question 11

for a given nominal wage, how does the lower general price level affect real wage?

Answer 11

a lower general price level causes an increase in the real wage so that with a given nominal wage more goods can be bought.

Question 12

when workers expect the price level to increase, what will they bargain?

Answer 12

If workers expect the price level to increase in the future they will bargain for a
higher nominal wage in order to protect their purchasing power.

Question 13

how are the expected price level and the bargained nominal wage positively correlated?

Answer 13

The expected price level and the bargained nominal wage is therefore positively correlated in that an increase in the expected price level increases the bargained nominal wage while a
decrease in the expected price level decreases the bargained nominal wage.

Question 14

how does the unemployment rate influences the bargaining power of workers?

Answer 14

The unemployment rate influences workers’ bargaining power in that rising unemployment erodes their bargaining power since they are more likely to lose their jobs and the probability of finding another job is lower when unemployment is high.

Question 15

how are the unemployment rate and bargained nominal wage negatively correlated?

Answer 15

The higher the unemployment rate the less is workers’ bargaining power and the lower the nominal bargained wage. On the other hand, the lower the unemployment rate the greater the workers’ bargaining power and the higher
the bargained nominal wage.

Question 16

what are the institutional facts that affect workers’ bargaining position?

Answer 16

Workers’ bargaining position is affected by institutional factors such a labor laws
and regulations, minimum wages and unemployment benefits.