labour market

Question 1

participation rate

Answer 1

labour force/population

ratio of labour force to non-institutional civilian population

Question 2

unemployment rate

Answer 2

unemployed / labour force

employment rate = 1 - unemployment rate

employment = employment rate * labour force

Question 3

job separation

Answer 3

fraction of employed lose their jobs

Question 4

job finding

Answer 4

fraction of population find jobs

Question 5

what happens to the flows of the labour market when the unemployment rate is high (stock U/L) ?

Answer 5

flow N -> U is high

flow U -> N is low

Question 6

cyclical unemployment

Answer 6

due to business cycles

Question 7

frictional unemployment

Answer 7

due to frictions e.g. process of matching workers with jobs

Question 8

structural unemployment

Answer 8

due to the economy’s supply potential, such as production possibilities and institutions

Question 9

natural unemployment

Answer 9

frictional unemployment + structural unemployment

Question 10

total unemployment

Answer 10

cyclical unemployment + natural unemployment

Question 11

reservation wage

Answer 11

the pay would make them indifferent between work and leisure

workers are typically a wage that lies above the reservation wage; how much above?

1. wage bargaining between workers and firms, where workers’ bargaining power depends on:
   i. collective bargaining through trade unions and labour market institutions
   ii. nature of job - higher the skills needed, more likely there is to be bargaining between employers and individual employees
   iii. labour market conditions - where unemployment rate is low, firms are willing to pay higher wages to new hires, and viceversa
2. Efficiency wage theories stress the link between productivity and
   wage. It also depends on (ii) and (iii)

Question 12

TRUE OR FALSE: The unemployment rate tends to be higher in recessions and lower in expansions

Answer 12

True, because of Cyclical unemployment. During recessions, the lower production causes lower employment and higher unemployment rate

Question 13

TRUE OR FALSE: Workers who do not belong to unions have no bargaining power.

Answer 13

False. Bargaining power depends not only on the belonging to a union but also on the personal characteristics of the worker (skills, age…) and on the kind of work.

Question 14

TRUE OR FALSE: The natural rate of unemployment is unaffected by policy changes.

Answer 14

False. The natural rate of unemployment depends on z and m. An increase in unemployment benefits increases z, or a less stringent enforcement in competition law increases m. In this way, policy changes can influence the natural rate of unemployment.

Question 15

Compare the job of a delivery person and a computer network administrator. In which of these jobs does a worker have more bargaining power? Why?

Answer 15

Computer network administrator because he is a high-skilled worker compared with a low skilled one.

Question 16

For any given job, which labour mkt conditions affect a worker’s bargaining power?

Answer 16

Market conditions are given by unemployment rate, insurance policy, employment protection policy and minimum wages. These factors (expect the unemployment) are contained in the variable z.

Question 17

Suppose a labour market condition increases. What effect would this have on the real wage in the SR and MR?

Answer 17

Assume we are at the natural equilibrium level. If bargaining power increases, real wage increases in SR but in MR the real wage returns to the effective equilibrium level due to the adjustment of effective price level to price expectations. Effect in MR will be increase in unemployment rate.

EQ level of real wage is given by level of prices and in the end by the markup on prices, not by the bargaining power of the workers.

Question 18

active labour market

Answer 18

has many separations and many hires and this many workers entering and exiting unemployment

Question 19

sclerotic labour market

Answer 19

has few separations and few hires and a stagnant unemployment pool

Question 20

Quits

Answer 20

workers leaving their jobs for what they perceive as a better alternative

Question 21

layoffs

Answer 21

come from changes in employment levels across firms

slowly changing aggregate employment numbers hide a reality of continual job destruction and creation across firms.

Question 22

collective bargaining

Answer 22

bargaining between firms and unions

Question 23

factors affecting level of bargaining power

Answer 23

1. how costly it would be for the firm to find other workers were they to leave the firm
2. how hard it would be for them to find another job were they to leave the firm.
3. nature of job (required skills)
4. labour market conditions e.g. low unemployment rate, more difficult for firms to find acceptable replacement workers, easier for workers to find other jobs.

Question 24

efficiency wage theories

Answer 24

theories that link the productivity or efficiency of workers to the wage they are paid

suggested that wages depend on both nature of job and labour market conditions

firms that see employee morale and commitment as essential to the quality of their work will pay more than firms in sectors where workers’ activities are more routine

wages are kept higher than market forces would dictate because employers want to induce high effort from the workers

Question 25

unemployment insurance

Answer 25

payment of unemployment benefits to workers who lose their jobs

by making prospects of unemployment less distressing, more generous unemployment benefits do increase wages at a given unemployment rate

allows unemployed workers to hold out for higher wages

at given unemployment rate, higher unemployment benefits increase the wage

Question 26

employment protection

Answer 26

makes it more expensive for firms to lay off workers

increase in EP will increase bargaining power of workers covered by this protection