Labor Market, Wages, and Unemployment

Flashcards reviewing key vocabulary and concepts related to labor market dynamics, wages, and unemployment.

Unemployment

The situation where individuals who are willing and able to work are unable to find employment opportunities.

Economic Downturns

A cause of unemployment: Economic recessions often lead to decreased demand, causing businesses to reduce production and lay off workers.

Technological Changes

A cause of unemployment: Advancements leading to automation and replacement of human labor with machines or software, resulting in job displacement.

Structural Shifts in Industries

A cause of unemployment: Changes in industry structure, such as globalization, leading to the decline of some sectors and growth of others.

Skill Mismatches

A cause of unemployment: Mismatches between the skills possessed by workers and the skills demanded by employers.

Frictional Unemployment

Unemployment due to normal turnover in the labor market and the time it takes to find new jobs matching skills and preferences; often temporary.

Structural Unemployment

Unemployment arising from fundamental changes in the economy, like automation, causing mismatches between worker skills and job requirements; tends to be long-term.

Cyclical Unemployment

Unemployment tied to fluctuations in the business cycle, occurring during economic downturns due to decreased demand.

Sticky Wages

The phenomenon where wages are slow to adjust to changes in labor market conditions, remaining above equilibrium even in high unemployment.

Natural Rate of Unemployment

The level of unemployment that would exist in the absence of cyclical unemployment.

Marginal Product of Labor (MPL)

The increase in a firm's revenues resulting from hiring additional labor; influences wage determination.

Labor Demand

The quantity of labor that firms are willing to hire at different wage rates.

Labor Supply

The quantity of labor that individuals are willing to offer at varying wage rates.

Wage Rigidity

The phenomenon where wages do not adjust to clear the labor market, potentially leading to inefficiencies in resource allocation.

Bathtub Model of Unemployment

A framework for understanding the dynamics of employment and unemployment rates, where inflows and outflows determine the equilibrium level.

Skill-Biased Technical Change

New technologies that disproportionately benefit highly skilled workers, leading to a shift in demand in their favor.