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SummaryCh07 - S u m m ar y In this chapter we bring supply...

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Summary In this chapter we bring supply and demand together in order to explore the determinants of employment and wages in a single labour market. Irrespective of the competitive structure of the labour market, imperfect competition in the prod- uct market will affect the shape of the firm’s labour demand function. However, there are no theoreti- cal links between imperfect competition in the product market and imperfect competition in the labour market. If the labour market is perfectly competitive, the standard supply and demand model will apply. In this case, by assuming a particular functional form for the supply and demand functions,we can solve explicitly for the equilibrium employment and wage levels. For purposes of policy analysis, it is often useful to solve for the reduced form,express- ing the endogenous variables (wages and employ- ment) as functions of the exogenous variables (shifters of supply and demand) and the parame- ters of the supply and demand functions. Solving
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