Unemployment Flashcards
natural rate of unemployment d
rate of unemployment arising from all sources except fluctuations in aggregate demand
what are estimates of potential or full capacity gdp based on
long term natural rate of unemployment
what sectors was there a big decline in during the financial crisis
decline of construction sector (don’t get extension or build new houses new kitchen etc),
decline of financial services sector
what did decline in construction sector and financial services sector create after the crisis
structural unemployment, workers formerly employed in sectors in decline would have harder time finding new jobs
what are the three possible states for a person aged 16+ years
N - non participation,
E - employed,
U - unemployed
examples of people in state N (non participation)
students aged 16+, retirees, parents on parental leave, long term sick, discouraged workers
who makes up the employed fraction
full time workers,
part time workers
what are the conditions of unemployed
must have looked for a job in the last 4 weeks and must be available to work in the next 2 weeks
what is the labour force equation
L = E + U
what is the basic unemployment rate equations
u = U/L = U/E+U = 1/(E/U+1)
what happens to the unemployment rate when someone gives up looking for a job
they drop out of U so u goes down
what are the categories of negative effects unemployment can have
economic, social and psychological
how does u move with the business cycle
u is strongly counter-cyclical
is u uniform across the population
u not uniform across population,
young people have higher u’s,
less-educated have almost always higher u’s as well
what was u in Europe until 1980s
from 50s to early 70s very low between 2-3%,
by 1980s average u in Europe about 8%
what has been happening to the employment rate (E/L) and the participation rate (L/Pop) since the early 1970s for european men
employment rate and participation rate of european men have both trended downwards since the early 1970s
participation rate equation
L / population
employment rate equation
E / L
does collective bargaining still matter in europe
collective bargaining still matters substantially in Europe
what are three reasons why the labour market does not clear *
firms reluctant to reduce wages bec. of the negative impact this would have on their workers’ productivity,
firms can’t reduce wages bec. of wage agreements achieved through collective bargaining,
any any given time there are many unemployed people and vacancies
what are some frictions in the labour market
imperfect info about potential trading partners,
heterogeneous workers and firms,
geographical frictions,
congestion effects
what are search costs
the costs incurred by firms and workers in their attempts to find each other
what is s
job separation rate - prob of being separated from a job (layoff or quit)
what is f
job finding rate - prob of finding a job
in the model are s and f endogenous or exogenous
s exogenous, f endogenous
what is H
hires - the result of a trading technology called the matching function
what is the matching function
H = H(U,V),
constant returns to scale in U and V
what is f also equal to
f = H(1,v/u), f = H/U = H(U,V)/U = H(U/U,V/U) = H(1,V/U) = H(1,v/u)
what is θ
labour market tightness
what is the matching function in intensive form
f = H/U = h(θ),
with θ = V/U = v/u,
so f = h(θ) = h(v/u)
what does a greater θ mean
tighter labour market, easier to find a job when relatively few job seekers per vacancy
what is ∆U
sE - fU
if ∆U=0 then what *
s(1-u) = fu,
after solving for u: u = s/s+f
formula for beveridge curve *
u = s / s+h(v/u)
what does the beveridge curve state
for a given degree of labour market tightness there is only one value of u compatible with ∆u=0,
this is because the beveridge curve is derived from the steady state
how do you get to the beveridge curve formula *
start from steady state when ∆U=0 and go from there,
actually learn how to do derivation, slide 36/125
what happens if θ goes down
θ down, f=h(θ) down, this results in u going up (beveridge curve)
what are the two graphs of the beveridge curve
y=θ x=u, downward sloping line,
y=v x=u, downward sloping line
what happens in recessions to u and v
v down, u up
what would an increase in s do to the beveridge curve
cause a shift outward of the BC
what would a deterioration of matching efficiency do to the beveridge curve
cause a shift outward of the BC
what would cause an outward shift in the BC
an increase in s,
a deterioration of matching efficiency
what is Wu
expected present value of income for an unemployed worker
what is We
expected present value of income for an employed worker
what is the long run value of the asset the sum of
next period’s discounted cash flow,
discounted value of that asset one period ahead