the labour market Flashcards
how do you calculate the unemployment rate ?
unemployment / economically active
what people flow in/out of employment ?
- people becoming unemployed
- people leaving the labour force
what people flow in/out of unemployment ?
- people becoming employed
- people moving to nea
what people flow in/out of labour force ?
- enter lf from employment and unemployment
- people dropping out of lf
what group of people are the largest proportion leaving the labour force ?
discouraged workers who move from not econ active to econ active
how do you calculate the employment level ?
employment / working age population
how are wages determined ?
- 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 ?
what is the reservation wage ?
wage paid high enough that workers prefer employment to unemployment
what to wages typically depend on ?
on labour market conditions e.g. lower unemployment , higher wages
what does bargaining power depend on ?
- how costly it is to the fir to replace a worker
- how hard it is for the worker to find other work
ignoring bargaining power for now, firms may want to pay more than reservation wage. why ?
they may want to be more productive
what are efficiency wages and what do they lead to ?
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
what is the equation for wage determination ?
W = Pe . F(u,z)
w - nominal wage
Pe - expected price level
u - unemployment level
z - other factors
how does expected price level effect wage determination ?
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
how does unemployment and other factors effect wage determination ?
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
what kind of factors are covered under Z ?
- unemployment insurance
- minimum wage
- employment protection
how are prices determined ?
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
considering the wage setting relationship, what is the equation for real wages ?
W = PF(U,Z)
W/P = F(U,Z
-,+ )
considering the price setting relationship, what is the equation for real wages ?
P = (1+M) W
P/W = (1+M)
W/P = 1/(1+M)
price setting decisions determine the real wage paid by firms
what is the equilibrium in the labour market ?
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
what does the graph with the price and wage setting relation look like ?
the ws relation is a convex curve and the ps is a horizontal straight line
the axes are
x - Un
y - W/P
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 ?
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
how do we change the P equation to inflation, including time ?
piet = = Pieet + (M + Z) - alpha.Ut
increase Pieet - increase piet
increase M or Z increase - piet increase
increase U - decrease piet
what was the phillips curve before the 1970s ?
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
