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UNI.YEAR1.TERM1.MACROECONOMICS1 > the labour market > Flashcards

the labour market Flashcards

1
Q

how do you calculate the unemployment rate ?

A

unemployment / economically active

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2
Q

what people flow in/out of employment ?

A
  • people becoming unemployed

- people leaving the labour force

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3
Q

what people flow in/out of unemployment ?

A
  • people becoming employed

- people moving to nea

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4
Q

what people flow in/out of labour force ?

A
  • enter lf from employment and unemployment

- people dropping out of lf

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5
Q

what group of people are the largest proportion leaving the labour force ?

A

discouraged workers who move from not econ active to econ active

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6
Q

how do you calculate the employment level ?

A

employment / working age population

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7
Q

how are wages determined ?

A
  • collective bargaining ; bargaining between unions and firms
  • wages set by employers or by bargaining between employers and employees
  • can take place at firm, industry or national level
  • contract agreements apply to different parties in different contexts

given such differences, can we develop a general theory of wage determination ?

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8
Q

what is the reservation wage ?

A

wage paid high enough that workers prefer employment to unemployment

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9
Q

what to wages typically depend on ?

A

on labour market conditions e.g. lower unemployment , higher wages

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10
Q

what does bargaining power depend on ?

A
  • how costly it is to the fir to replace a worker

- how hard it is for the worker to find other work

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11
Q

ignoring bargaining power for now, firms may want to pay more than reservation wage. why ?

A

they may want to be more productive

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12
Q

what are efficiency wages and what do they lead to ?

A

they are wages that are based on how efficient worker is

they lead to

  • a decrease in turnover
  • increase in productivity
  • suggest that wages depend on both the nature of the job and labour market conditions
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13
Q

what is the equation for wage determination ?

A

W = Pe . F(u,z)

w - nominal wage
Pe - expected price level
u - unemployment level
z - other factors

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14
Q

how does expected price level effect wage determination ?

A

if workers expect prices of their goods to increase, they will want their nominal wages to increase

if sellers expect the prices of goods they’re selling to increase they will be more willing to increase the nominal wage

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15
Q

how does unemployment and other factors effect wage determination ?

A

unemployment increases , wage rate decreases

as less bargaining power as its harder to find a job, willing to accept lower wages

increase in unemployment allows firms to pay lower wages, still keeping workers willing

increase in Z implies and increase in W

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16
Q

what kind of factors are covered under Z ?

A
  • unemployment insurance
  • minimum wage
  • employment protection
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17
Q

how are prices determined ?

A

prices depend of firms costs and costs depend on production functions

Y = AN 
N = labour 
A = 1 
Y = N

price = marginal cost = wage

if not in a perfect commutative market then prices are determined by a markup

P = (1+M)W

18
Q

considering the wage setting relationship, what is the equation for real wages ?

A

W = PF(U,Z)

W/P = F(U,Z
-,+ )

19
Q

considering the price setting relationship, what is the equation for real wages ?

A

P = (1+M) W

P/W = (1+M)

W/P = 1/(1+M)

price setting decisions determine the real wage paid by firms

20
Q

what is the equilibrium in the labour market ?

A

it is where real wage in the price setting and real wage in the wage setting relationship are equal

U*

F(Un,Z) = 1/1+M

21
Q

what does the graph with the price and wage setting relation look like ?

A

the ws relation is a convex curve and the ps is a horizontal straight line

the axes are
x - Un
y - W/P

22
Q

to find the phillips curve equation, we must first look at the relationship between inflation, expected inflation and unemployment.

what is the equation for P, interms of Pe and un employment ?

A

as we use (1 - alpha.U + Z) for the functional form of F(U,Z)

P = Pe (1+M).(1 - alpha.U + Z)

U increases , W decreases
Z increases , W increases

23
Q

how do we change the P equation to inflation, including time ?

A

piet = = Pieet + (M + Z) - alpha.Ut

increase Pieet - increase piet
increase M or Z increase - piet increase

increase U - decrease piet

24
Q

what was the phillips curve before the 1970s ?

A

piet = pie bar + (M+Z) - alpha. Ut

inflation this year was not dependent on last year ( not a good predictor ) therefore takes a value of pie bar - trade off

25
Q

how did the phillips curve start to change over time ?

A

people started to take into account a persistence to inflation therefore a high pie bar t would mean a high pie bar t + 1

no longer a trade off

26
Q

what is the equation for inflation expectations ?

A

pieet = ( 1 - theta ) . piebar + theta piet+1

the higher theta is the more that last years inflation leads workers and firms to adjust their expectations of what inflation will be this year. - the higher the expected inflation

27
Q

what was the value of theta in

a. 1970
b. now

A

a. 0

b. 1

28
Q

what does the phillips curve equation look like enow that we have this equation for expected inflation ?

A

piet = (1-theta).piebar + theta.piet-1 + (M + Z) - alpha.Ut

theta = 1

piet = piet-1 + (M + Z) - alpha.Ut

when we look at the change in inflation rate the equation changes to :

piet - piet-1 = (M + Z) - alpha.Ut

29
Q

when U = Un ( natural rate of unemployment )

what does P = and what does pie =

A

P = Pe

pie = piee

30
Q

there fore, using the phillips curve: what is the equation for the natural rate of unemployment ?

A

0 = (M + Z) - alpha.Un

Un = (M + Z) / alpha

31
Q

the higher the U or Z the ……. ?? ….. the Un ?

A

the higher the Un

32
Q

how to we find the equation for the relationship between the change in inflation, actual and natural unemployment ?

A

piet - piet-1 = (M + Z) - alpha.Ut
= - alpha.Ut + (M+Z)
= - alpha ( Ut - (M+Z)/alpha)
= - alpha ( Ut - Un )
if the expected inflation is a good estimate then

pie - piet-1 = - alpha ( Ut - Un )

33
Q

how does inflation compare to inflation a year ago and what does this mean about the inflation rate when

a. Un < Ut
b. Un = Ut
c. Un > Ut

A

a. pie t < pie t-1 ( inflation is falling so - rate )
b. pie t = pie t-1 ( inflation is no changing so 0 rate )
c. pie t > pie t-1 ( inflation is rising so + rate )

34
Q

list 4 labour market rigidities .

A
  • generous system of unemployment
  • high degree of employment
  • minimum wages
  • bargaining rules
35
Q

what are labour market rigidities ?

A

properties of the labour market which make adjustments difficult and mean that people move around less ( from employed to un and out of labour force )

36
Q

what is a generous system of unemployment insurance, and how does it make the labour market rigid ?

A
  • the replacement rate (benefits : after tax wage)
  • duration of benefits allowed

can be desirable to be unemployed as firms have to pay higher wages to keep and motivate their employees

37
Q

what is a high degree of employment protection, and how does it make the labour market rigid ?

A
  • rules that increase the cost of layoffs for firms ( high severance payments )
  • the purpose is to decrease layoffs
  • but it also increases the cost of rising labours and these restrict the amount of flo win or out of the employment sector
38
Q

how does minimum wage make the labour market rigid ?

A
  • ratio min:median wage effects how hard someone wants to be employed at a higher level
  • high minimum wages run the risk of limiting employment for the low skilled workers
39
Q

how do bargaining rules make the labour market rigid ?

A
  • most eu countries have contracts or are subject to contract agreements which can be reinforced with bargain power which leads to higher unemployment as its needed to demands of workers with wages paid by firms
40
Q

what is the equation that shows the relationship between the output gap and the difference between unemployment and the natural level of unemployment ?

A

Y - Yn = - L ( U - Un)

U=Un , Y=Yn (output gap = 0)

41
Q

when you equate the relations that compare the output gap and inflation rate and the change in unemployment and natural rate of unemployment

how do you relate the output gap and inflation rate ?

A

pie - piet-1 = alpha/L . (Y - Yn)

L - labour force

UNI.YEAR1.TERM1.MACROECONOMICS1 (8 decks)

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