Week 6: Labour markets Flashcards
Definition of someone who is employed:
Working at a paid job
Definition of someone unemployed:
Not employed but looking for a job (actively in the last 4 weeks)
Definition of labour force:
employed + unemployed
Definition of inactive:
not employed nor looking
What is the working age population?
16 - 64 years old
What is the employment population ratio?
How has it changed?
It is the fraction of the civilian population over 16 working
It has increased over time but decreases in recessions
What is the equation for the unemployment rate?
unemployment rate = (unemployed / labour force) * 100
What does it mean to say that labour markets are dynamic?
- 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
What are labour market flows?
There are always people moving between different states of unemployment
There is also a cost associated with all of these flows
What are the different states of the labour market?
- Employed
- Unemployed
- Inactive (likely retired or students about to start working)
What do many countries have to limit the flows?
Many counties have social security nets; these help people who are about to leave employment and who are inactive to deal with their situation
What are the different kinds of unemployment and describe them:
- Cyclical Unemployment (short run fluctuations in output due to changes in the economy)
- Natural Rate of … (how unemployment changes without booms and recessions)
- Frictional Unemployment (Occurs when workers are between jobs)
- Structural … (Results from industrial reorganization or technological changes that make certain skills obsolete)
- Actual unemployment = frictional + structural
How can we model how employment and unemployment evolve over time?
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
what do we get setting the change in employment to 0:
We get that
U* = sL/(f+s)
What is the RATE of unemployment
u* = U*/L = s/(f+s)
What policies and institutions can affect f and s?
- incentives to open vacancies
- inventives to exert search effort
- efficiency of search
- cost of separation
- outside option for quitters
What are sove “active” labour market policies?
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
What is unemployment insurance?
Paying part of someone’s wage after worker loses job:
What are the impacts of ui?
- Reduces unemployment hardship
- UI may lead to better matches improving productivity
- May suport aggregate demand on institutions
reduces opportunity cost of being unemployed
What is employment protection legislation?
Its what certain countries adopt to protect workers and companies
It can make it easier or harder to fire workers
What are some EPL strategies?
High mandatory severance pay, notice period
Spellng out conditions, such as misconduct
What impact does EPL have on the rate of unemployment?
Lower s
Lower f
- Neutral effect on U
- Smaller flows in high EPL
U persists, longer unemployment with higher EPL
