UNIT.6 LABOUR MARKETS AND UNEMPLOYMENT
Page 1: Introduction to Macroeconomics
University Information: University Unilus of Lusaka
Course Focus: Introduction to macroeconomics
Key Topics Introduced: Theoretical frameworks of welfare, Net S income, market expenditures, economic measures associated with production and depreciation.
Page 2: Objectives
Main Objectives:
Derive the demand and supply of labor
Discuss types of unemployment
Analyze effects of unemployment and mitigating measures
Understand the Phillips curve
Page 3: Labour Markets
Definition: Labour economics studies markets where labor services are exchanged for wages.
Key Points:
Labor represents the resource, wages represent the price.
Importance of labor income as it's typically the largest share of total income for most individuals.
Efficient use of labor market resources is vital to enhance production capacity.
Wage distribution is critical to understanding income distribution in society.
Labor is a crucial component of national wealth.
Page 4: Labour Demand and Supply - Neoclassical Theory
Utility Sources: Consumers derive utility from consumed goods (C) and leisure (L) represented as U(C, L).
Total time allocation: Available time (T) equates to the total hours in a given period.
Labour Supply: Defined as hours worked (h = T - L) with market wages (W) and non-wage income (R).
Page 5: Effects of Wage Increase on Labour Supply
Ambiguity of Wage Effects:
Higher wages may increase labor supply if the substitution effect is stronger than the income effect: (T - L) is small.
Higher wages may decrease labor supply if the income effect is stronger than the substitution effect: (T - L) is large.
Page 6: Labour Demand and Supply Graphical Representation
Graph Elements: Representations with various wage levels (W1, W2, W3) and corresponding hours worked (L1, L2, L3).
Page 7: Neoclassical Theory of Labour Demand
Concept Overview: Demand for labor is derived from final goods demand. Firms maximize profits via production functions influenced by capital and technology.
Production Assumptions:
Real output (Y) influenced by labor (L) and capital (K).
Profit calculated as total revenue (TR) minus total costs (TC).
Page 8: Profit and Production Function
Profit Equation:
Profit = PQ - (WL + R*K)
Examines how profits correlate with production factors, emphasizing constancy in returns to scale.
Page 9: Marginal Product of Labor (MPL)
MPL Formula: Reflects additional output from extra labor: MPL = F(K, L + 1) - F(K, L).
Profit and Labor Demand:
Profit change from hiring an additional unit: ΔProfit = ΔRevenue - ΔCost = (P × MPL) - W.
Demand for labor hinges on equalizing P × MPL with wage W (MPL = W/P).
Page 10: Unemployment Definition
Economic Condition: Characterized by individuals actively seeking jobs but remaining unemployed.
Full Employment: More jobs are available than individuals seeking employment.
Population Breakdown:
Economically inactive vs. active roles classified as employed (E) or unemployed (U).
Page 11: Unemployment and GDP (Okun’s Law)
Okun’s Law: Indicates a negative relationship between unemployment rates and real GDP. An increase in unemployment precedes a decrease in GDP.
Page 12: Causes of Unemployment
Types vs. Causes: Characterizes unemployment types while analyzing underlying causes.
Demand Deficiency: Linked to aggregate demand shortages, leading to layoffs during economic recessions.
Monetarist Views: Supply-side factors contributing to unemployment, such as trade unions demanding higher wages.
Page 13: Graph of Causes of Unemployment
Illustration Elements: Displays relationships between wage cases (W min, Weq), labor supply (N), and labor demand (N units).
Page 14: Types of Unemployment
Categories:
Seasonal Unemployment: Tied to specific periods in certain industries.
Frictional Unemployment: Short-term, due to imperfect information or mismatches in labor.
Structural Unemployment: Long-term shifts in demand and supply patterns.
Cyclical Unemployment: Linked to economic downturns.
Page 15: Equilibrium Unemployment
Graph Interpretation: Shows labor demand (LD) slopes downwards; equilibrium at point E, indicating natural unemployment levels.
Page 16: Nature of Equilibrium Unemployment
Labor Market Dynamics:
Demonstrates how labor supply (LF) interacts with wanted job offers (AJ) and equilibrium wage rates.
Page 17: The Role of Unions in Unemployment
Union Influence: Power to maintain high wages leads to potential increased natural unemployment levels.
Page 18: Economic Effects of Unemployment
Resource Utilization: Unemployment leads to wasted economic resources and opportunity costs.
Government Revenue Loss: Unemployment reduces tax income, impacting government finances.
Social Costs: Includes mental health declines, increased crime rates, and political repercussions.
Page 19: The Phillips Curve
Relationship Overview: Inverse statistical relation between wage inflation and unemployment established by A.W. Phillips in 1958.
Page 20: Phillips Curve Graph
Graph Data: Plots inflation rates against unemployment rates, illustrating economic trends.
Page 21: Implications of the Phillips Curve
Economic Policy Limitations: Highlights the impossibility of achieving both low inflation and low unemployment simultaneously due to mutual exclusivity.
Page 22: Understanding Stagflation
Stagflation Defined: Occurs when inflation and unemployment rise simultaneously, defying Phillips curve expectations.
Historical Context: Coined in the 1970s to describe stagnant growth amid rising prices.
Page 23: Stagflation Graph
Graph Analysis: Shows price levels and output during stagflation periods.
Page 24: Supply-Side Policies
Economic Strategy Visuals: Illustrates how supply-side policies interact with price levels and national output.
Page 25: Measures to Curb Unemployment
Policy Recommendations:
Lowering income taxes
Promoting privatization and deregulation
Addressing union power to allow more flexible wage acceptance
Providing job information and training to enhance labor market efficiency.