Week 6: Labour markets

Question 1

Definition of someone who is employed:

Answer 1

Working at a paid job

Question 2

Definition of someone unemployed:

Answer 2

Not employed but looking for a job (actively in the last 4 weeks)

Question 3

Definition of labour force:

Answer 3

employed + unemployed

Question 4

Definition of inactive:

Answer 4

not employed nor looking

Question 5

What is the working age population?

Answer 5

16 - 64 years old

Question 6

What is the employment population ratio?
How has it changed?

Answer 6

It is the fraction of the civilian population over 16 working

It has increased over time but decreases in recessions

Question 7

What is the equation for the unemployment rate?

Answer 7

unemployment rate = (unemployed / labour force) * 100

Question 8

What does it mean to say that labour markets are dynamic?

Answer 8

• People are always searching for jobs
• Searching is costly, but people want to get a good job
• There is always open vacancies
• However, filling said vacancies is costly

Question 9

What are labour market flows?

Answer 9

There are always people moving between different states of unemployment
There is also a cost associated with all of these flows

Question 10

What are the different states of the labour market?

Answer 10

1. Employed
2. Unemployed
3. Inactive (likely retired or students about to start working)

Question 11

What do many countries have to limit the flows?

Answer 11

Many counties have social security nets; these help people who are about to leave employment and who are inactive to deal with their situation

Question 12

What are the different kinds of unemployment and describe them:

Answer 12

1. Cyclical Unemployment (short run fluctuations in output due to changes in the economy)
2. Natural Rate of … (how unemployment changes without booms and recessions)
3. Frictional Unemployment (Occurs when workers are between jobs)
4. Structural … (Results from industrial reorganization or technological changes that make certain skills obsolete)
5. Actual unemployment = frictional + structural

Question 13

How can we model how employment and unemployment evolve over time?

Answer 13

E(t) + U(t) =L

Change in unemloyment:

ΔU(t+1) = sE(t) - fU(t)

where s represents the job separation rate
and f represents the job finding rate

Question 14

what do we get setting the change in employment to 0:

Answer 14

We get that

U* = sL/(f+s)

Question 15

What is the RATE of unemployment

Answer 15

u* = U*/L = s/(f+s)

Question 16

What policies and institutions can affect f and s?

Answer 16

• incentives to open vacancies
• inventives to exert search effort
• efficiency of search
• cost of separation
• outside option for quitters

Question 17

What are sove “active” labour market policies?

Answer 17

Govt employment agencies:
- Help disseminate info and help people with job search

Public job Training Program:
- help people from declining industries

Conditional Unemployment Benefits:
- Incentivise worker search
- Only get unemployment insurance if job searching

Question 18

What is unemployment insurance?

Answer 18

Paying part of someone’s wage after worker loses job:

Question 19

What are the impacts of ui?

Answer 19

1. Reduces unemployment hardship
2. UI may lead to better matches improving productivity
3. May suport aggregate demand on institutions

reduces opportunity cost of being unemployed

Question 20

What is employment protection legislation?

Answer 20

Its what certain countries adopt to protect workers and companies

It can make it easier or harder to fire workers

Question 21

What are some EPL strategies?

Answer 21

High mandatory severance pay, notice period
Spellng out conditions, such as misconduct

Question 22

What impact does EPL have on the rate of unemployment?

Answer 22

Lower s
Lower f

• Neutral effect on U
• Smaller flows in high EPL

U persists, longer unemployment with higher EPL