Unit 9: The Labour Market Flashcards
What does Unit 9 of CORE Econ focus on?
Price-setting and wage-setting behaviours that explain real wages, unemployment, policy impacts, and union influence.
Who is counted as unemployed?
Someone not in paid work, available for work, and actively seeking employment.
Can countries have the same unemployment rate but different employment levels?
Yes, due to differences in labour force participation rates.
Why do firms pay above the minimum wage?
To motivate employee effort when contracts cannot enforce work quality.
What is the real wage?
The nominal wage divided by the price level of consumer goods.
What does the wage-setting curve show?
The real wage needed at each employment level to motivate effort.
Why is the wage-setting curve upward sloping?
Because lower unemployment increases the reservation wage, requiring higher pay to motivate effort.
What determines the price-setting curve?
Markup over costs and labour productivity.
What is the Nash equilibrium in the labour market?
Where no firm or worker can improve their situation by changing behaviour—wages and employment are stable.
Why is there involuntary unemployment in equilibrium?
To maintain work incentives—no job loss cost would reduce effort.
What causes demand-deficient unemployment?
A fall in aggregate demand, reducing production and hiring.
Why doesn’t the labour market adjust smoothly?
Due to resistance to wage cuts, morale issues, and deflationary expectations.
How can governments help return to equilibrium?
By boosting aggregate demand using fiscal or monetary policies.
What is the role of labour unions?
To negotiate wages and employment conditions on behalf of workers.
What is the bargaining curve?
The wage that results from union-employer negotiations for each employment level.
How do unions affect unemployment?
They may raise it by pushing wages above the wage-setting curve, though effects vary.
What is the union voice effect?
When workers have a say in decisions, they provide more effort for the same wage.
What shifts the price-setting curve?
Increases in labour productivity or wage subsidies that reduce production costs.
What shifts the wage-setting curve?
Lower unemployment benefits or higher labour supply.
What increases labour supply?
Immigration and policies like improved childcare that raise participation.
What are the two curves determining labour market equilibrium?
The wage-setting curve and the price-setting curve.
Why is unemployment persistent in equilibrium?
Because it enforces work discipline by making job loss costly.
Can government policies eliminate unemployment?
No, but they can reduce demand-deficient unemployment and improve equilibrium outcomes.
