AG EC 1042 1st Edition Lecture 9Outline of Last Lecture I. UnemploymentII. Measuring UnemploymentIII. LimitationsOutline of Current Lecture I. Labor Market EquilibriumII. Categories of Unemploymenta. Natural Rate of Unemploymentb. Cyclical UnemploymentIII. Other Factors and Influences on Unemploymenta. Wage Ratesb. Unemployment InsuranceCurrent LectureI. Labor Market EquilibriumJust like goods and services are in supply and demand, so is labor, and labor also has a price called wage. At equilibrium, the quantity of labor demanded by firms equals the quantity of labor supplied by individuals. However, since unemployment exists, there must be something else going on in the labor market.The labor demand curve visually shows the relationship between the quantity of labor demanded by firms and the wage rate. Under ceteris paribus conditions, firms will want more labor when wages are low and vice versa. The labor supply curve shows the relationship between the labor supplied and wage rate. Under ceteris paribus conditions, more people are willing to work when wages are high, and vice versa. These curves describe the national labor market. And market equilibrium exists where the labor supply and demand curves intersect. However, the equilibrium does not explain why unemployment exists.II. Categories of UnemploymentUnemployment occurs because the wage rate is too high, higher than the equilibrium wage rate. There are two categories of the causes of unemployment, thefirst being the natural rate of unemployment. The natural rate of unemployment is the normal level of unemployment that exists in an economy in the long run. There are three contributors to this: frictional These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.unemployment, structural unemployment and real-wage or classical unemployment.Frictional unemployment is unemployment that occurs when individuals are changing their job, location or career. Structural unemployment is when there is a mismatch in the skills a worker has and the skills that are in demand. Lastly, real-wage, or classical, unemployment occurs when wages are higher than themarket-clearing level.The second category of unemployment is cyclical unemployment. Cyclical unemployment is unemployment caused by short-term fluctuations in the economy. These fluctuations are also known as business cycles in order to describe the short term ups and downs. Then, there are wages, and wages are slow to respond to the shifts in the economy which causes wages to be above the market-clearing level.III. Other Factors and Influences on UnemploymentThere are factors that unintentionally effect unemployment by keeping wages higher than equilibrium wages. Some examples are minimum wage, labor unions and efficiency wages. Minimum wage is the lowest wage that a firms can legally pay their workers. Then there are labor unions. Labor unions are groups of employees that join together to bargain with their employers about their working conditions and salaries. Thirdly, there are efficiency wages, these are wages that are purposely higher than the equilibrium rate to increase productivity and give workers more of a reason to stay and work hard for their firm.Then there is unemployment insurance. Unemployment insurance is money paid by the government to unemployed individuals. However, two outcomes can occur from unemployment insurance. One, people may not look as hard for a job because they know that they have a very generous payment coming from the government. Or, since individuals have a payment from the government help them live, they are able to weigh their options and decide what job they would like to work at, if they are offered more than one. Thus, allowing them to find a job that is right for them and having less of a chance of becoming unemployed again very
View Full Document