Unit 16 - Technological Progress, Employment, and Living Standards in the Long Run Flashcards
What are factors of Labour market matching, why vacancies aren’t filled instantly
Skill mismatch – unemployed workers may not have the skills required for the job
Jobseekers and vacancies may be located in different parts of the country
Information frictions: Jobseekers and/or employers may not know about each other
Policies and technology can improve matching efficiency
What is the Beveridge curve
Relationship between unemployment and job vacancies (negative relationship)
How can improved Job Matching efficiency affect the Beveridge curve
Moves closer to the origin if more efficient
What does long-run employment rate depend on
How well policies and institutions deal with:
Work incentives - depend on wage-setting curve
Investment incentives - depend on price-setting curve
What could affect equilibrium profits
Legislations such as property protection
What is the formula for the Long-run price setting curve
w = λ(1 − µ∗)
Real wage = LRPS curve (1 - markup)
What is the equilibrium markup affected by
Expected long-run tax rates
Competition
Risk of expropriation
Quality of human capital/infrastructure
Opportunity cost of capital (e.g. interest rates on bonds)
Expected material costs
Technological change can indirectly shift the wage-setting curve due to:
Bargaining by trade unions
Policies to help those affected e.g. employment protection laws
Greater disutility of effort or opportunity cost of time
Improvement in the reservation wage (e.g. due to more generous unemployment benefits or increasing rural incomes in developing economies)
Technological change increased inequality in the short run but reduced inequality in the long run
How?
In the short run inequality increases:
A rise in the number of unemployed workers with low or no income,
In the short run only the employers reap the benefit of the new technology.
In the long run inequality falls
In the long run employees’ share of output returned to initial levels due to an increase in real wages
The higher real wage motivated employees to work hard at a lower level of unemployment
How can an economy achieve a ‘good’ economic performance
Ensure the price-setting curve shifts up more than the wage-setting curve
Adjust rapidly and fully so the whole economy benefits from technological progress
How can cross-country differences in economic performances be explained
Institutions - inclusive trade unions (represent many firms and sectors) choose not to exercise maximum bargaining power because wage increases affect job creation in the long run.
Policies – well-designed unemployment insurance schemes and job placement services can achieve low unemployment rates (inducing relocation of workers from less to more productive firms shifting PS curve up).
