LECTURE 4 (2009) - 1 Analyzing the minimum wage law Claim :...

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Unformatted text preview: 1 Analyzing the minimum wage law Claim : The only employment effect of minimum wage laws is to increase unemployment of unskilled workers. Why? real wage Employment of unskilled labour 2 Analyzing the minimum wage law Claim : The only employment effect of minimum wage laws is to increase unemployment. Really? What does the recent worldwide recession tell us? Average real wage Number of employed workers L S L D L D1 We Wmin 3 Wage inequality and skills Why do we observe growing wage inequalities? The impact of globalisation and technological changes w Employment (unskilled workers) Employment (skilled workers) w 4-2-1 1 2 3-2.00 0.00 2.00 4.00 6.00 8.00 Output growth (%) Change in the unemployment rate (%) 2005 High output growth is typically associated with a decrease in the unemployment rate. Low output growth is typically associated with an increase in the unemployment rate. Change in the Unemployment Rate versus GDP Growth, Australia, 1961-2005 Okun s Law 5 Business cycles and Unemployment Okun s Law 1.7 = 1 6 Introductory Macroeconomics Week 4 The Keynesian Short Run Macroeconomic Model ECON 1002 7 A Short Run Macroeconomics Model In this lecture, we will study about John Maynard Keynes, the concept of aggregate expenditure and the role of aggregate expenditure in short run business cycles Keyness view of consumption short run macroeconomic equilibrium the Keynesian cross 45 0 diagram and the 4-sector model the goods market multiplier 4-sector model 8 Who was Keynes? 1883 1946 Cambridge University Economic Consequences of the Peace (1919): criticism of German war reparations The General Theory of Employment, Interest and Money (1936): in response to the Great depression of the 1930s (Intellectually) responsible for the Bretton Woods system and the formation of the IMF. A founder of macroeconomics 9 The role of Aggregate Expenditure in Short Run economic fluctuations (business cycles) GDP can be decomposed into expenditure components (consumption, investment, government spending and net exports) as seen in lecture 1. This means that an analysis of the fluctuations in GDP (output) can be carried out by examining the fluctuations (and the rationales behind those fluctuations) in each of the component of aggregate expenditure. It also means that it is possible to influence the level of output by influencing the level of any of these components 10 Australian GDP- expenditure measure A$bn, current prices 91/92 02/03 Contribution to GDP growth* Consumption (C) 244 453 52% Investment(I) 62 158 24% Government expenditures (total) (G) 101 162 15% Net Exports (NX=X-M) 1-19-5 Gross Domestic Product (GDP) 405 753 86% Source: ABS, Australian System of National Accounts (5204.0) *In calculating the percentage contributions to GDP growth accounted for by the expenditure components, all the percentage changes are calculated in terms of GDP in the base year such that: [(GDP 1...
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LECTURE 4 (2009) - 1 Analyzing the minimum wage law Claim :...

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