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Flashcards in Week 5 - Labour Force Deck (20):

Describe the micro model of employment

Firms demand labour as an input into production. The labour supply curve describes the entire supply of labour (represents employees) .

The model assumes that the market will clear and includes no unemployment.


Describe the effect of an increase in income tax on the labour market

The tax reduces after tax wages, labour supply (upwards shift) contracts, employment declines and wages increase.


Describe the effect of automaker's subsidy being withdrawn

The break even point for hiring is raised as less money results in less demand for labour. Consequently, wages and employment fall (leftwards shift in demand curve)


Describe the effect of a floor on wages

At the higher wage rate, an excess of supply is creates. This mismatch causes unemployment to rise as the market can't clear.


Formula for the participation rate

those in the labour force/ total working age population


Define employed people

those who have worked at least 1 hour in the week before the survey


Define unemployed people

those who have not worked at all in the week before the survey, who were actively looking for work in the past 4 weeks. They must also be ready to work


What are 3 issues with unemployment statistics?

- In a recession, people tent to leave the labour force (edu or discouraged) making unemployment look lower
- Under-employment is hard to capture
- people claiming to be unemployed when they're not can lead to it being overstated


Factors that impact employment prospects

Education improves prospects

Older workers are unemployed longer (ageism and specialisation)

Unemployment rates are higher among young people


Define cyclical unemployment

Caused by shifts in the business cycle. Falling activity leads to less production and lay offs. When the economy recovers, the rate continues to rise for a time due to lag


Define full employment

No cyclical unemployment - only frictional and structural


Define the natural rate of unemployment

rate of unemployment when the economy operates at potential GDP


define frictional unemployment

short term unemployment arising from the time taken to match workers and jobs


Define seasonal unemployment

caused by factors such as the weather, tourism, Christmas etc


Define structural unemployment

Arises from the persistent mismatch between skills and requirements


What is the actual rate if unemployment?

Frictional + structural (aka natural) + cyclical


What are 5 costs of unemployment?

1) loss of GDP through lower L and the opportunity cost of slack human capital
2) loss or deterioration of human capital
3) retraining costs
4) financial costs to the government through benefits and loss of tax revenue
5) social costs such as loss of income, crime, health etc


How can rising unemployment in the 60s and 70s be explained?

Exogenous shocks can cause long term unemployment.

Many you workers entered the labour force at this time as the baby boomers became old enough to work. The decline in the 80s and 90s was due to the ageing of them


Explain the variables in the bathtub model

endogenous: employment and unemployment
exogenous: job search rate and job finding rate


Formula for the bathtub model

labour = employment + unemployment
channge in unemployment = employed who lose jobs - unemployed finding jobs