Topic 5: Labour Market Flashcards
Show the profic maximising conditions for firms.
W = PYMPL = VMPL
R = PYMPK = VMPL
or
w = MPL
r = MPK
Give the Cobb-Douglass marginal products
MPL = (1-α)A(K / L)α = (1-α) Y / L
MPK = (α)A(L / K)1-α = α Y / K
What do the exponents in the Cobb-Douglas PF show us?
The contribution of labour & capital to production, specifically the share of the cost of one factor in the total cost.
In most industrialized economies, α ~= .3
α is also the elasticity between capital and labour.
Show the labour demand curve, with shifters labeled.
If consumption & leisure are perfect complements, show the effects on the labour supply curve
As the wage increases, Leisure time increases, so the labour supply curve is backward bending.
In the Rod’s undergraduate macro model (UMM), what is presumed about labour supply?
That it is perfectly inelastic.
Derive Marshallian demand curves for Consumption and Leisure, when utility is cobb-douglass.
Maximising Cα TL(1- α) subject to C + wTL = wT
You get:
C = αwT
TL=(1-α)T
ie, TL and then hence TW is indepenent of w
What does the literature say on labour supply curves?
The issue is not settled, some indicate perfectly inelastic, some indicate slight backward or forward bending. The assumption of perfect elasticity then is not outrageous.
What are the primary determinates of labour market equilibrium?
How are these affects by macroeconomic policy in this unit?
- Capital stock
- Technology
- Consumption-lesiure preferences
Not at all. These factors might cause shocks, but monetary & fiscal policy don’t affect them in the time frame we consider.
What is Okuns law?
That output is determined by the labour market - an increase in labour usage nececcarily means an increase in GDP. In Au the ratio is 1:2.8, 1:2 for the US.
