The Labour Market Flashcards
(18 cards)
What is the natural rate of unemployment?
The rate at which the wage demands of workers are consistent with the price decisions of firms
What is the unemployment rate?
The ratio of the unemployed to the labour force
What are the two types of labour markets reflected by a given unemployment rate?
- Active labour market
- Sclerotic labour market
What do economists sometimes focus on instead of the unemployment rate?
The employment rate
What is the reservation wage?
The wage that would make workers indifferent between working or being unemployed
What are the general features of wage determination?
- Workers are typically paid above their reservation wage
- Wages depend on labour-market conditions
- Workers’ bargaining power depends on costs for firms and job availability
What do efficiency wage theories link?
The productivity of workers to the wage they are paid
What is the wage-determination equation?
W = Pe F(u, z)
What does an increase in the unemployment rate do to wages?
Decreases wages
In the price-setting relation, what does P represent?
The price set by firms
What does the production function relate?
The inputs used in production to the quantity of output produced
What is the price-determination equation?
P = 1 + m W
What is the natural rate of unemployment also known as?
The structural rate of unemployment
What can change the natural rate of unemployment?
Institutions and policy
What happens to the natural rate of unemployment when unemployment benefits increase?
It increases
What is the equilibrium in the labour market?
The real wage chosen in wage setting is equal to the real wage implied by price setting
What is the implication of the relationship between the expected price level and actual price level in the short run?
Unemployment is not necessarily equal to the natural rate
What does the WS relation look like in terms of employment?
Decreasing in unemployment and increasing in employment
