Static Labour Supply

Question 1

Define: population

Answer 1

Civilian adult population, 16+

Question 2

Define: Employed (E)

Answer 2

Job with pay for at least 1 hour or worked at least 15 hours on a non paid job (such as at a family farm)

Question 3

Define: Unemployed (U)

Answer 3

Temporary layoff from a job or have no job and actively looking for work in the past 4 weeks

Question 4

Define: out of labour force (OLF)

Answer 4

Residual group (i.e. house-man, retiree, student)

Question 5

Equation: labour force

Answer 5

Employed + Unemployed

Question 6

Equation: Employment rate

Answer 6

Emplpyed / Population

Question 7

Equation: unemployment rate

Answer 7

Unemployed / labour force

Question 8

List three issues with measuring the labour force?

Answer 8

What does it mean to ‘be actively looking for work in the past 4 weeks’?

Persons who gave up looking for a job, are not considered as unemployed

In contrast, everyone claiming to be ‘actively looking ’? is consider as unemployed

Question 9

Outline: income effect

Answer 9

With higher wage, by working the same amount of hours the income is higher. With leisure as normal good, income effect negatively affects labour supply

Question 10

Outline: substitution effect

Answer 10

With higher wage, the opportunity cost of

leisure is higher. Substitution effect always positive on hours worked

Question 11

Define: reservation wage

Answer 11

The minimum level of wages that would make the person indifferent between working and not working

(the minimum increase in income that would make our agent indifferent between remaining at the endowment point E and working that first hour)

Question 12

When will an agent enter the employment market

Answer 12

market wage > reservation wage

Question 13

What is the condition for optimal hours of work?

Answer 13

Slope of indiff curve = slope of B/C (MRS = w)