labour market Flashcards
participation rate
labour force/population
ratio of labour force to non-institutional civilian population
unemployment rate
unemployed / labour force
employment rate = 1 - unemployment rate
employment = employment rate * labour force
job separation
fraction of employed lose their jobs
job finding
fraction of population find jobs
what happens to the flows of the labour market when the unemployment rate is high (stock U/L) ?
flow N -> U is high
flow U -> N is low
cyclical unemployment
due to business cycles
frictional unemployment
due to frictions e.g. process of matching workers with jobs
structural unemployment
due to the economy’s supply potential, such as production possibilities and institutions
natural unemployment
frictional unemployment + structural unemployment
total unemployment
cyclical unemployment + natural unemployment
reservation wage
the pay would make them indifferent between work and leisure
workers are typically a wage that lies above the reservation wage; how much above?
- wage bargaining between workers and firms, where workers’ bargaining power depends on:
i. collective bargaining through trade unions and labour market institutions
ii. nature of job - higher the skills needed, more likely there is to be bargaining between employers and individual employees
iii. labour market conditions - where unemployment rate is low, firms are willing to pay higher wages to new hires, and viceversa - Efficiency wage theories stress the link between productivity and
wage. It also depends on (ii) and (iii)
TRUE OR FALSE: The unemployment rate tends to be higher in recessions and lower in expansions
True, because of Cyclical unemployment. During recessions, the lower production causes lower employment and higher unemployment rate
TRUE OR FALSE: Workers who do not belong to unions have no bargaining power.
False. Bargaining power depends not only on the belonging to a union but also on the personal characteristics of the worker (skills, age…) and on the kind of work.
TRUE OR FALSE: The natural rate of unemployment is unaffected by policy changes.
False. The natural rate of unemployment depends on z and m. An increase in unemployment benefits increases z, or a less stringent enforcement in competition law increases m. In this way, policy changes can influence the natural rate of unemployment.
Compare the job of a delivery person and a computer network administrator. In which of these jobs does a worker have more bargaining power? Why?
Computer network administrator because he is a high-skilled worker compared with a low skilled one.
For any given job, which labour mkt conditions affect a worker’s bargaining power?
Market conditions are given by unemployment rate, insurance policy, employment protection policy and minimum wages. These factors (expect the unemployment) are contained in the variable z.
Suppose a labour market condition increases. What effect would this have on the real wage in the SR and MR?
Assume we are at the natural equilibrium level. If bargaining power increases, real wage increases in SR but in MR the real wage returns to the effective equilibrium level due to the adjustment of effective price level to price expectations. Effect in MR will be increase in unemployment rate.
EQ level of real wage is given by level of prices and in the end by the markup on prices, not by the bargaining power of the workers.
active labour market
has many separations and many hires and this many workers entering and exiting unemployment
sclerotic labour market
has few separations and few hires and a stagnant unemployment pool
Quits
workers leaving their jobs for what they perceive as a better alternative
layoffs
come from changes in employment levels across firms
slowly changing aggregate employment numbers hide a reality of continual job destruction and creation across firms.
collective bargaining
bargaining between firms and unions
factors affecting level of bargaining power
- how costly it would be for the firm to find other workers were they to leave the firm
- how hard it would be for them to find another job were they to leave the firm.
- nature of job (required skills)
- labour market conditions e.g. low unemployment rate, more difficult for firms to find acceptable replacement workers, easier for workers to find other jobs.
efficiency wage theories
theories that link the productivity or efficiency of workers to the wage they are paid
suggested that wages depend on both nature of job and labour market conditions
firms that see employee morale and commitment as essential to the quality of their work will pay more than firms in sectors where workers’ activities are more routine
wages are kept higher than market forces would dictate because employers want to induce high effort from the workers
unemployment insurance
payment of unemployment benefits to workers who lose their jobs
by making prospects of unemployment less distressing, more generous unemployment benefits do increase wages at a given unemployment rate
allows unemployed workers to hold out for higher wages
at given unemployment rate, higher unemployment benefits increase the wage
employment protection
makes it more expensive for firms to lay off workers
increase in EP will increase bargaining power of workers covered by this protection
