Chapter 9 Flashcards
Consequences of unemployment
- some productive potential of the economy is not being put to use
- leads to higher rates of depression and lower assessments of self worth
What is unemployment
Occurs when someone wants to work but cannot find a job
Working age population
The non-institutionalize population aged fifteen and over
Labour force
People in the working age population who are either currently working or who would like to work and are trying to find a Job
Labour force = employed + unemployed
Unemployment rate
Number of unemployed people divided by the labour force
Employment rate
Number of employed divided by the working age population
Labour force participation rate
Number of people in the labour force divided by the working age population
Tells is what fraction of the population wants to be working
Underemployed
People who have part time jobs but would like to work full time
Labour demand curve
Shows the relationship between the total quantity of labour demanded by all the firms in the economy and the wage rate
What happens to the labour demand curve when the wage rate decreases
The amount of labour demanded by firms increases
Curve points down
What happens to labour when wage rate increases
Increase in the supply of labour (curve points up)
Explain equilibrium in labour demand and labour supply curves
Occurs at the intersection of the supply and demand curves
-at equilibrium wage, quantity demanded equals quantity supplied
Natural rate of unemployment
The normal level of unemployment that persists in an economy in the long run
Three contributors to the natural rate of unemployment
- Frictional
- Structural
- Real-wage (classical) unemployment
Frictional Unemployment
Unemployment caused by workers who are changing their location, job, or career
Structural Unemployment
Unemployment that results from a mismatch between the skills workers can offer and the skills that are in demand
Real-wage or classical unemployment
Captures the effect of wages remaining persistently above the market-clearing level
Effect of an economic slowdown
Labour demand curve shifts left
Sticky wages
Wages are slow to respond to shifts in the economy
Minimum Wage
The lowest wage that a firm is legally allowed to pay its workers
Living Wage
The minimum income necessary for a worker to acquire basic need like food, housing, and clothing
Result of minimum wage being higher than equilibrium wage
Unemployment would result
Result of minimum wage being below equilibrium wage
No effect; called a non-binding minimum wage
Labour Unions
Groups of employees who join together to bargain with their employer(s) over salaries, benefits and work conditions
Three reasons why wages might be above the market-clearing level
- Workers are less likely to quit
- Higher wages encourage workers to work harder and be more productive
- Higher wages attract better job applicants
So it could be more efficient for a firm to pay workers more than the going wage rate
Employment Insurance
Money that is paid by the government to people who are unemployed (EI)
