Term 2 week 9 Flashcards
What is the unemployment rate?
Those who are not working who:
looking for a job
ready to start work
What is the labour force?
What is the employment rate?
What is the difference for unemployment rate?
What is the participation rate?
1.The number of employed people compared to the working population
- those who are unemployed as a fraction of the labour force
- The number of active labour force compared to adult population
What is the natural rate of unemployment?
The long run level of unemployment
How does the participation rate link to business cycles
-No real trend
-Less volatile than GDP
What is the trend of wage?
wages have been increasing and they are correlated with wages.
What is the trend of unemplyoment and business cycles?
Unemployment is highly countercyclical and persistent.
What is the trend of the participation rate?
What is the trend in the real wages?
What about disparity in wages?
Participation rate has been increasing but recently has decreased.
-Real wages are increasing in the long term
How is unemployment in RBC model different from real life?
Unemplloyment is acyclical but much less volatile.
How can nominal rigidities explain unemployment?
-If there is a negative demand shock
-and the wage is rigid this means that there will be unemployment.
What is the labour market diagram
What are the reasons behind wage rigidities?
- long term contracts - wages are agreed in advance
-law like min wage laws
-efficiency wages , lowering wages decreases productivity.
-union and collective bragaining.
Whatis a one sided search model?
What is a two sided search model?
We only care about the behaviour of the unemployed workers.
What does the value of being employed depend on?
What does the value of being unemployed depend on?
Inreasing but concave function of the wave
-Decreasing in the separation rate
-Unemployed value, increasing of benefits
-increasing in the probability of getting a job next period. (as they will get more picky and hence not commit to a job)
What does the one-sided search model look like graphically?
What is the intersection of this?
wage x axis
Welfare y axis
The employed one is a concave function
The unemployed one is a constant horizontal line,
They intersect at the reservation wage
What is the reservation wage?
Graphically what would an increase in the unemployment benefit cause?
-The lowest wage in which a worker will accept to work
-Would cause the horizontal kine to shift up which would increase the reservation wage
How do you compute the long-term unemployment rate?
What is the long-run equilibrium unemployment and how is it computed?
H(w) is the fraction of unemployed workers that get a wage greater than w
flow of workers from employment to unemployment = (1-u) . s
flow of workers from unemployment to employment is UpH(w)
What does the one-sided search model say about unemployment?
it says that it relies heavily on the unemployment benefit as it impacts the incentives.
What is the set up of the search model?
U = fraction of unemployed
1-U is fraction of employed
every period fraction s lose job, this is the separation rate.
unemployed get benefits b
with prob p they get job offer
What is H(w) graphically?
Stepping and curved graph
in the long run when will unemployment be constant?
when s . (1-u) = UpH(w)
Graphically how do you show the long run unemployment
Graph the inflow of workers and the outflow of workers
inflow into employment upward sloping
What happens to the flow of worker diagram when there is an increase in the unemployment benefit?
The flow of emplyoment pivots down as the fraction of people getting an acceptable offer decreases.
