Labour market Flashcards
What model do we use for labour?
Neoclassical
What does it mean that we start with a micro founded model for the labour market?
We assume a micro model and then scale it up to macro by multiplying it by how many firms there are
What model do we use for the labour market?
Neoclassical
What are two standard neoclassical propeties?
Positive diminishing returns to the factors and constant returns to scale
What production function do we use for the labour market and what do we simplify it to and why?
y = f(Ǩ,N,Â) ≈ f(N) capital stock and technology are considered fixed in the short term
What is the main aim of any firm?
To maximise profits
What profit function to firms face?
∏ = Pf (N) − WN
What does the two parts of this equations and for? ∏ = Pf (N) − WN
Pf (N) - total revenue
WN - labour bill
What do W and N stand for?
Nominal wage and number of men hours employed
How do you find the marginal product of labour?
Differentiate the profit function with respect to N
What is the equation for marginal product of labour? And the marginal product of labour multiplied by price?
W/P = f'(N) = MPN W = P.f'(N) = P.MPN
What is the condition for demand in the labour market?
Equality between the real wage and the marginal product of labour, or equality between the nominal wage and the value of the marginal product of labour.
What shape is the demand for labour curve?
Downwards sloping curve
What neoclassical property means the labour demand curve slopes downwards?
Positive diminishing returns
Who represents the supply side of the labour market?
Households
What is the households main aim?
To maximise his utility, through the consumption go goods and leisure
What is the utility function for households?
U = U(c,l)
Why do we use expected price int eh labour supply equation?
Time lag between earning wages and expenditure of such income
Why do we use expected price int eh labour supply equation?
Time lag between earning wages and expenditure of such income
What is the equation for the labour supply curve?
c =W/Pe (12−l)
What two equations do we combine to form the labour supply curve?
12 = l + N, Pec =WN
What is the effect of raising wages on the labour supply curve?
It would steep the budget constrain and rise there vertical intercept
Why does raising wages increase the vertical intercept but not the horizontal intercept of the labour supply curve?
Increasing the wages increases the maximum labour income but it doesn’t change he number of working hours in a day
What is the expected labour supply function?
W =Pe g(N)
we = W/Pe = g(N)
Where is the equilibrium in the labour market?
The intersection between the labour supply and demand curves
What are the two different graphs you can draw for labour supply?
Either nominal wage, W or real wage W/P
What is meant by all unemployment is voluntary in the model?
The man hours not employed because the households choose to enjoy them hours as leisure
What is perfect competition in the labour supply model?
Atomistic bargaining, where workers individually bargain for their wages and have no power to affect the wage they are paid for their efforts
What is imperfect competition in the labour supply model?
When workers bargain for their wages and can effect the price they get paid
How does imperfect competition effect the labour supply curve?
Parallel shift upwards
Are wages higher with perfect or imperfect competition?
Imperfect
Where is the equilibrium point for labour demand for an imperfect competitive firm?
Equality of the real wage and the marginal product of labour multiplied by a factor of 1 + the elasticity of demand
Where is the equilibrium point for labour demand for an imperfect competitive firm?
Equality of the real wage and the marginal product of labour multiplied by a factor of 1 + the elasticity of demand
Draw the voluntary and involuntary employment on a labour demand and supply graph.
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