Unemployment and labour markets macro

reasons wages may be higher than market clearing wage

selection, turnover, morale, discipline (no shirking)

efficiency wage equation

firms general optimization problem

wa is alternative wage with other firms

no shirking condition

at equilibrium w=w*, value of working must exceed value of shirking

downward sloping demand curve in shirking model

frictional unemployment

delta is probability of finding job

lambda is job destruction, can find it by equaling ut and ut+1

expected duration of unemployment

McCall’s search model

wr-b=h(wr)

phillips curve

three reasons for hysteresis

shirking utility

unemployment rate in next period

reservation wage graph

unemployment in the efficiency wage model

labour market bargaining model

z is catch all variable, prices are also set at mark up for firms P= (1+mu)W

natural rate of unemployment

AS curve given by prices and unemployment

Phillips curve

mu is price markup and z is a catch all variable

NAIRU

NSC graph

wage bargaining graph

phillips curve with indexed wages

then just re-arrange as inlfation expectation is inflation in period t-1

insider outsider model

three theories of hysteresis

insider-outsider theory, long-term unemployment, capital scrapping