the labour market Flashcards
what is the simple microeconomic production function that satisfy the standard neoclassical properties?
y =f (K~ , N , A~) = f(N) where K is capital stock , A is technology and N is labour input but as it is in the short run the A and K are fixed so the function can be shortened to be only related to N
what is the profit function for the simple microeconomic model that satisfy the standard neoclassical properties?
profit = P x f(N) - W x N where P is the price of the firms product, W is the wage and N is the labour input and f(N) is the short term production function
what is the condition of equillibrium for the demand for labour on the part of the firm?
the condition for equillibrium for the demand of labour on the part of the firm is given by the equality between the real wage and the marginal product of the labour
what is the shape of the denmand for labour curve?
the demand for the labour curve slopes downwards.
how do you find the macroeconomic demand curve for labour?
as all firms are identical and face identical conditions, the macroeconomic demand for labour is just given by the microeconomic solution multiplied by however by however many firms there are in the economy.
what is the utility function for a representative household?
the representative household problem is that of maximising utility which is a function of consumption of goods c and of leisure L
U = U (c, L)
what are the constraints on the utility function for a representative household?
the household faces the constraint that there are only 12 waking hours in a day that have to be allocated between leisure and labour supplied . there is also the constraint that the household needs to earn a wage before being able to purchase the consumer goods. assuming there is a time lag between the earning of the wages and the expenditure of such income on goods and households, when they decide how much labour to supply they need to form and expectation of the price level as it will prevail at the time of actual expenditure
12 = l + N Pe x c = W x N where c is consumption and l is leisure
this means the constraint is c = W/Pe x (12 - l)
what is the effect of raising the nominal wage on the supply of labour?
raising the nominal wage increases the opportunity cost of an extra hour of leisure and under suitable normality conditions, it can be envisaged that the supply of labour will go up as the wage goes up. the labour supply function will be a positive function equated to the expected real wage w^e=W/Pe = g(N) where g(N) is a generic positive function and w^e is real wage
what will a rise in prices lead to if there is a discrepancy between the actual price change and expected price change?
a rise in the prices will lead to an expansion in employment and output in so far as there is a discrepancy between the actual price change and the expected price change. this likely to occur in the short to medium run but no tin the long run as in the long run . this is due to the vertical distance between the supply curves exactly identical to the vertical distance between the labour demand curves. so equilibrium will occur again vertically above the original employment level. this is why the long run aggregate supply curve is vertical
why can the price not be interpreted as given in a imperfect competition labour market?
the price cannot be given as it is determined by the quantity the firm itself produces. the more output produced the lower the price so therefore the price shoui;d be a function of output P(y)
what is the equilibrium
condition for the demand of labour in a imperfectly competitive firm?
it is given by the equality between the real wage and the marginal product of labour multiplied by a factor of 1+ the elasticity of demand. since the latter is negative the overall factor in brackets must be less than 1 and therefore the imperfectly competitive demand for labour must be strictly to the left of the perfectly competitive one
how does the imperfect competition labour market compare to the perfect competition labour market?
the equillibrium number of man hours employed will be smaller. the overall unemployment rate will be consequently higher then under perfect competition. the equilibrium wage rate will be higher than under perfect competition. this must be the case no matter the shape of the curve because otherwise nobody would belong to the unions
is all unemployment voluntary under imperfect competitive labour markets?
unemployment is now both voluntary and involuntary. tracing a horizontal line from the new higher equilibrium wage rate to the totality of the labour force constraint on the extreme right, one can see that there will still be some voluntary unemployment, represented by all those points on the perfectly competitive supply cure above the new equilibrium wage rate. These points represent hours for which the wage rate is still too low,and they will still be enjoyed as leisure. But these are now only a portion of the total unemployment rate. All thoseman hours to the left of them, represent hours that would have been supplied as labour but households are unableto do so, and therefore this constitutes INVOLUNTARY unemployment.
why even in non unionised countries such as in America do firms still choose to hire workers over the market clearing rate?
firms maychoose to hire workers at a wage higher than the market clearing one, in order to obtain keener labour. This canbe synthetically captured by the famous quotation attributed to Henry Ford the pioneering American industrialist:“if you pay people peanuts, you get lazy monkeys”. He was famous for paying a salary to Ford workers that was a multiple of what comparable manufacturing jobs in the United States paid at the time. The effect was that he was able to attract to his factories in Detroit the very best workers in the entirety of the United States, and once hired,they were all very keen to remain employed at Ford, putting extra effort in what they were doing. This argument goes under the name of ‘Efficiency Wages’ and postulates a positive relationship between the wage paid and the effort put in by workers in their job. An effort that the firm can only imperfectly monitor.
what does the shape of the AS curve look like when the expected prices change by the same amount that actual prices do?
the shape of the AS curve is a vertical line as the number of workers will remain at the same employment level regardless of the wage or price level
