Chapter 6: The macro labor market

how do tou calculate the participation rate?

=labour force

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population of working age

calculate unemployement rate:

unemployed

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labour force

calculate employment rate:

employed

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population of working age

who is the OECD predecessor?

OECC

what does NEET stand for?

Not in Education or Training (youths category)

what characterises the unemployed?

• are not paid employement or self employemnt

• are available for work

• are actively seeking work

What are the different types of unemployment?

• Structural

• Cyclical

• Frictional

What is structural unemployement?

• a lasting gap between jobs on offer and employemnt on offer.

• requires radical surgery to the economy and retraining people= skills gap

• unemployment insurance makes it worse by delaying change.

What is cyclical unemployment?

• unemployment rises and falls either by the season of the buisness cycle.

• goes away eventually, can be smoothed out with unemployment insurance.

• short term changes due to changes in economic demand

What’s frictional unemployement?

• market downturns means less work, fewer jobs but:

  • switching jobs takes people a bit of time and effort (transaction costs)

  • wages are sticky:no one wants to earn less so search and acceptance is takes longer.

  • employees will work less if paid less in their existing firms.

What are the causes of frictional unemployement and how can we lower it?

• causes: time it takes to match employers with employees.

• lower: apprentiship programs, information, temp agencies, job fairs…

what is the increase in unemployement caused by fall in aggregate demand called?

cyclical unemployment or demand-decicient unemployment.

Why do political factors matter in unemployement too?

• prior to an election → try and stimulate economy → result in lower unemplyement on the short term.

What are the causes of long term unemployment (structural)?

• economic shocks

• lasting change to the country’s production profile.

• skills gap

• wage levels.

• governement policies that affect attractiveness of work.

• low productivity → higher structural unemployment rate

What shocks can lead to a long-run economic change? examples

• China shock:

  • entry to the WTO → layoffsin manufacturing communities.

• Technological changes make some industries unnecessary.

What is the natural state of unemployement?

= frictional + structural unemployement

→ general state of the economy.

what causes involuntary unemployement?

= excess suply in the labour market.

→ always exist in labour market equilibrum.

What are the 2 equilibrums in labour market?

• no institutions helping workers out at all.

• governement supports strong union rights.

markets work either with no institutions to help labour, or, with very string ones. (combinations work poorly)

What is the labour market and it’s curve?

• relationship between employers and workers and on how wages are set by HR.

• Curve= Wage-setting (WS) curve .

What is the product market and it’s curve?

• how prices for customers are set.

• Price setting (PS) curve.

What are the 2 types of wages?

• nominal wage= actual amount recieved in payment for work, in a particular currency.

• real wage= ajusted to take into account changes in price between different time periods. → measures amount of g&s the worker can buy.

What influences the real wage? +calculation

real wage= wages/ prive

• inflation.

• unemployment level

• productivity

• monopoly power of firms.

WS curve:

• imagines the real wagecompanies need to pay to keep workers

  • ‘working’- providing sufficient level of effort.

  • ‘shirking’ - providing no effort at all.

PS curve:

• shows the real wage paid.

Does structural unemployement still happen at Nash equilibrum of PS and WS?

YES.

labour union:

= an organization consisting predominantly of employees.

Main activities= negociation of rates of pay and conditions of employment for its members.

What are the 2 kinds of economies that can coordinate workers and companies efficiently?

• liberal market economies (UK, US…)

• coordinated market economies (Germany, Nordic countries…)

Government policies in labour markets:

• re-shape the labour force to meet new structural economic needs.

• try and maximise labour market participation by removing impediments. (childcare…)