Labour Market Flashcards
Participation rate =
Labour force / Population of working age
Discouraged workers…
are out of the labour force but would take a job if offered to them
U rate =
Unemployed / Labour force
Is the U rate a good indication of the state of the Labour market?
No, as shocks to D or S can result in different sequential effects on the unemployment rate. e.g. income tax causes firms to lay off workers, U rises; if all laid off workers become discouraged, U rate may return to its original value
L̅ =
Et + Ut
ΔUt+1 =
s̅Et - f̅Ut
The bathtub model steady state determines…
The natural rate
In SS ΔUt+1 =
0
Number of people unemployed in SS =
U* = (s̅L̅) / (f̅ + s̅)
Unemployment rate in SS =
u* = U*/L = s̅ / (f̅+s̅)
How can the natural rate be changed?
By changing s̅ or f̅
Actual U =
Natural + Cyclical
Natural U =
Structural + Frictional
Policies to decrease s̅…
often lead firms to decrease f̅ (firing restrictions)
U Insurance factors:
Duration of entitlement & Replacement rate (of last wage)
