Labour Markets And Unemployment Flashcards
Characteristics of an individual’s labour supply?
Supply is inelastic in the short run.
In the long run likely to be backward bending, as higher incomes can afford both more consumption and leisure.
Aggregate labour supply is more responsive to wage changes.
Describe a firms demand for labour
Depends on the marginal productivity, determined by technology and capital stock.
Firms hire until marginal productivity=real wage.
Demand curve can be shifted by tech progress and changes in capital stock.
When does involuntary unemployment occur?
Involuntary unemployment arises when real wages do not decline to clear the market.
What do labour unions do?
They care about real wages and employment.
They ask for higher wages than if the market were perfectly competitive.
The resulting unemployment is voluntary for unions but not for all individuals.
Named two factors that may cause involuntary unemployment?
Firms may use efficiency wages.
Governments set minimum wages
What are the problems with unemployment benefits?
Unemployment benefits are a disincentive to work thereby increasing equilibrium unemployment. Training and relocation subsidies can reduce this equilibrium.
Describe the consumption leisure trade off
Households trade leisure for consumption.
An increase in wages can induce more labour supply if the sub dominates and less of the income eff dominates.
Labour supply is elastic, when the sub and income offset each other supply is inelastic.
