Ch008 - Chapter 8 Workers Wages and Unemployment in the...

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Chapter 8 Workers, Wages, and Unemployment in the Modern Economy Overview This chapter develops the labor market. It describes and explains important trends in the labor markets of industrialized countries, including trends in real wages and employment. The chapter uses the supply and demand model developed in earlier chapters to look at unemployment. It shows that two key factors contribute to recent trends in wages and unemployment: globalization ad technological change. Core Principles Increasing Opportunity Cost – this is cited as the economic basis for the principle of diminishing returns to labor (and capital). Employers will assign workers to the most productive job, and so each successive worker is assigned to the next most productive job, and so the marginal product of adding another worker decreases. Cost-Benefit Principle –the cost-benefit principle is used to discuss workers' decisions to work at any given wage. The concept of opportunity cost is used to describe the reservation price (the cost of working) which should be compared to the pay from a job. Principle of Comparative Advantage - the authors point out that globalization has the benefit of increased specialization and the efficiency it brings, with the result that all consumers of all countries enjoy a greater variety of goods and services, of better quality and at lower prices, than they would without such trade. Cost-Benefit Principle –this principle is applied to government regulations imposed on the labor market. Important Concepts Covered Diminishing returns to labor Frictional/structural/cyclical unemployment Worker mobility Skill-biased technological change Teaching Objectives After completing this chapter, you want your students to be able to: Discuss domestic and international patterns in real wages 99
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Discuss domestic and international patterns in unemployment Define the marginal product of labor and diminishing returns to labor Discuss the value of marginal product of labor and its relationship to labor demand Illustrate factors that shift the labor demand curve Discuss the nature of labor supply Illustrate factors that shift the labor supply curve Explain the role of technological change and capital stock on real wage growth Explain the effect of greater international trade on wage inequality Discuss worker mobility as a way to lessen the impact of international trade Define skill-biased technological change and explain its impact on wage inequality Discuss efficient and inefficient solutions to lessen the impact of technological change on wage inequality Define frictional, structural, and cyclical unemployment List and discuss the impediments to full employment Explain differences in unemployment patterns between Western Europe and the U.S. Chapter Outline
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This note was uploaded on 04/15/2008 for the course ECO 181 taught by Professor Cherry during the Spring '07 term at SUNY Buffalo.

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Ch008 - Chapter 8 Workers Wages and Unemployment in the...

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