Unemployment and the Labor Market

These flashcards cover key concepts related to unemployment and the labor market, including definitions and the relationships between various economic factors.

Unemployment Rate (u.r.) and how it is calculated

The percentage of the labor force that is unemployed, calculated as (Number of Unemployed / Labor Force) x 100.

Labor Force Participation Rate (LFPR) and how it is calculated

The percentage of the potential working population that is part of the labor force, calculated as (Labor Force / Potential Workers) x 100.

Frictional Unemployment

Unemployment that occurs when people are between jobs or entering the workforce, arising from imperfect information about available jobs.

Structural Unemployment

Unemployment that arises when there are persistent mismatches between the skills of workers and the demands of employers.

Cyclical Unemployment

The deviation of the unemployment rate from its natural rate, typically increasing during economic downturns and decreasing during growth.

Discouraged Workers

Individuals who want to work but have given up looking for a job.

Wage Rigidity

A situation where wages do not adjust downward easily, causing unemployment when demand for labor decreases.

Value of the Marginal Product of Labor (MPl)

The additional output produced by one more unit of labor, valued at the market price of the output.

Labor Demand Curve

A curve that shows the relationship between the quantity of labor demanded and the market wage.

Aggregate Labor Market

The total market for labor, determined by the supply of workers and the demand for labor from firms.

Marginal Benefit (MB) of Labor

The additional benefit gained from hiring one more unit of labor, measured as the Value of the Marginal Product of Labor.

Downward Wage Rigidity

A condition where wages cannot easily decrease, leading to higher unemployment when labor demand falls.

Should Marginal Benefit (P*MPL) or Marginal Cost (W) be higher when thinking about hiring a worker?

Marginal Benefit (P*MPL) should be higher. This indicates that the revenue generated from one more worker exceeds the cost of hiring them, making it advantageous for firms to hire additional labor.

What changes a Labor Supply Curve?

Factors such as wages, labor market policies, population demographics, and changes in preferences influence the labor supply curve.

What changes a Labor Demand Curve?

Factors like wages, productivity, technology, and the overall economic condition affecting firms' willingness to hire influence the labor demand curve.

Why does unemployment occur?

Unemployment occurs due to various factors such as economic downturns, mismatches between skills and job requirements, or structural changes in the economy. Additionally, seasonal fluctuations and changes in demand for labor can contribute to unemployment rates.

What are the three types of unemployment?

The three types of unemployment are cyclical, structural, and frictional unemployment.

How does the labor market effect overall output in an economy?

The labor market influences overall output by determining workers' availability and productivity levels, directly impacting production capacity and economic growth.

What happens or doesn’t happen when there is a decrease in the demand for labor?

1. 1. Wages DO NOT decrease​

2. 2. There is a surplus of workers willing to work at the market wage​

3. 3. Employment is lower than with flexible market wages​

4. 4. Output (Real GDP) DECREASES MORE than with flexible wages in the labor market! ​