Lecture 17Outline of Last Lecture I. Cyclic UnemploymentII. Sticky WagesIII. Explicit ReasonsIV. Implicit Reasons Outline of Current Lecture I. Implicit ReasonsII. Labor Market Minimum WageIII. Long-Term UnemploymentA. Frictional UnemploymentB. Structural UnemploymentIV. Wages and Productivity V. Policies Affecting UnemploymentCurrent LectureThis lecture continues on and finishes chapter 8. First we will continue with the implicit reasons of why wages can be sticky. The insider-outsider model is another example of a reason. The insider in this model is an experienced worker who has been with a company for a long time. The insider is vital to the operation of the company. The outsider is the newest and less experienced worker for the company. The insider will not be happy is their wages are cut, in order to keep on an outsider. The insider is likely to leave the company. It is instead better to keep the insider wage higher. The final implicit reason is that it is important to allocate wage reductions in a way that is perceived fair. Sometimes a minimum wage will be at the market equilibrium of a labor market. This means that even if the labor demand curve shifts, the wage cannot shift. Therefore if the labor demand curve shifts to the left, anew market equilibrium will not be formed. Instead, the minimum wage will go across until it reaches the new labor demand curve and the quantity demanded is the corresponding value going vertically down from that point. The gap between the first labor quantity demanded and the new quantity demanded shows a surplus in available labor. This is what leads to unemployment. The next section will look at long-term unemmployment. As with short-term unemployment, there are examples of types of long-term unemployment. One example is frictional unemployment. This model says that there are reasons why finding a new job will take time, such as search and relocation costs. Therefore, there will always be some people unemployed. Another example is structural unemployment. This model says that the skills of workers do not align with the desired skills from the company. This model shows another reason why unemployment will never be 0%. This is referred to as the natural rate of unemployment. In the United States, this natural rate of AGEC 217 1nd Editionunemployment is around 5.5%. If the natural rate of unemployment is equal to the unemployment rate, economists say that the economy is at full employment. Wages are connected to a worker’s productivity. It is best for the wage to equal the marginal productivity. If the wage is greater than the marginal productivity, then the company is losing money and will eventually go out of business. If the wage is less than the marginal productivity, the worker will eventually leave to find another job. If productivity of a worker increases, the labor demand will end up shifting to the right. This will lead to an overall increase in wages and labor quantity in the labor market. The government has instituted policies affecting unemployment. The debate is over whether unemployment benefits should be long or short-term. Long-term monetary benefits are seen to give incentivesfor people to not look as hard for work or to give up looking completely. Short-term benefits keep the incentiveto keep looking for a job, but they are barely enough for a worker to stay afloat. Economists say that the best way to reduce unemployment is to boost the