How is unemployment measured?
unemployed / labor force
who is considered to be unemployed
people who can and want to work / currently searching for a job
who is considered to be part of the labor force
16 years or older not including institutionalized or military
what type of people does the labor force consists of
employed and unemployed
how is the civilian non-institutionalized population measured
labor force + not in the labor force
Discouraged worker effect
decrease in the unemployment rate may not always be better - people stop searching for jobs
added worker effect
increase in the unemployment rate may not always be worse - people start searching for jobs
when the labor force participation rate increases:
the economy is doing good
when the labor force participation rate decreases:
the economy is doing bad
how is the labor force participation rate measured
labor force / population
define establishment survey
what institution where people work "how many people are working for you
how many sectors are there
two, private and public
name the different types of unemployment
- seasonal
-frictional
-structural
-cyclical
example of seasonal unemployment
migrant workers; have a job at some point in the year
example of frictional unemployment
information lag; have a job offer but haven't accepted, "moving to Seattle for a new job
natural types of unemployment include
seasonal and frictional
example of structural unemployment
people without skills; jobs requiring skills but there is no match, does not qualify
example of cyclical unemployment
economic downturn; recession happens; GDP is falling
T1 + W1 + W2 = B1 + B2 simplify
training investment + wages paid = benefits received from workers
define general training
allows workers to use in the job and also somewhere else
training that can me used in different terms is what type of training
general training
employer has no incentive to pay for general training;
why pay for it if people can leave
when there is low mobility costs
people can easily leave and use the training elsewhere
when there is high mobility costs
it is not that easy for people to move around; employer pays for the training
in theory if there is no cost for the employee to move from firm to firm;
the employee would pay for the training
monopsony;
firms have power over workers
example of specific training
given to a worker for that particular job; training that can be used only for that job
when it comes to specific training, who has the incentive to pay for it?
both the employee and employer
when an economic downturn occurs
firms are less likely to layoff skilled workers; it would be a loss of an investment
structural unemployment; firms require less skill
but its at its best interest to keep these workers
job search theory
ideally you want to get a job where your skills are fully paid
employee doesn't have the incentive to pay for specific training but if he/ she invests in the training;
job security would increase
example of reservation wage;
i know I'm worth this much, but if i get offered X amount, I'll accept it
simplify W*
best match for skill wage
unemployment benefits
policy intended to help buy will have the consequences of frictional unemployment; Reservation wage increases
two workers with identical skils may have different wages depending on
opportunity
classical way of thinking:
do nothing about it, strongly agrees that markets will correct themselves
keyensian way of thinking:
role govs. can play to re-stimulate the economy back into full employment
define labor demand
it is derived demand from the firms profit maximization problem
how much output should the firm produce?
the level that will maximize profit
how many workers should a firm hire?
the number that will produce the maximum output
describe the 5 underlying assumptions
1. we are in the short run;
2. labor is the only variable input; all other inputs are fixed
3. we have perfectly competitive product and input markets
4. the only cost of labor is the wage rate; which the firm and workers take as given
5. the only cost of
what is the shortrun period
any period where at least one input is fixed
what is the long run period
any period where all inputs are variables
combining all inputs into
capitol
profits =
revenue - costs
revenue =
price * quantity
change in profit / change in quantity = MR - MC = 0
when profits are maximized
define MC
marginal cost; cost of producing additional output
Define P
revenue form producing (selling) an additional unit
change in cost / change in quantity =
marginal costs
when MR = MC
the firm has no additional profits to gain by expanding, it has done the best it can.
simplify C = VC + FC
costs = cost of variable inputs ( labor costs = W * L) + cost of fixed inputs (capital)
define value of the MPl
how much the workers contribution is worth in output markets
say W = $20, P=$2, MPl=$12
an additional worker produced 12 more units, worth a total of $24, (12*2),
W < P * MPl; profits will rise by $4 if another worker is hired; labor will increase
say W = $20, P=$2, MPl=$9
an additional worker produced 9 more units, worth a total of $18, (9*2),
if W > P * MPl
$20 > $18 you have to lay off a worker so profits can increase by $2 and W = P * MPl
elastic of labor demand
percent change in the quantity demand of labor / percent change in the wage
-1 unitary elastic, example
10% increase in wages = 10% decrease in labor
> 1 elastic, example
change in wages will have a big impact in labor
< 1 inelastic, example
change in wages will have little impact in labor
1st Hicks marshal law of demand
the more elastic is the demand for the product, the more elastic is the demand for labor
2nd Hicks Marshal law of demand
the higher the share of labor cost, the more elastic is the demand for labor
3rd Hicks Marshal law of demand
the more elastic is the supply of capital, the more elastic is the demand for labor
4th Hicks Marshal law of demand
the easier it is to substitute away from capital into labor and vice versa, the more elastic is the demand for labor