EXAM2 GUIDE

EXAM2 GUIDE - Macro Exam 2 13/05/2009 11:38:00 Chapter 6...

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Unformatted text preview: Macro Exam 2 13/05/2009 11:38:00 Chapter 6 Unemployment Rate- Ratio of unemployed to the workforce. Unemployment can be from 2 things Many separations/ hires Sclerosis stagnant economy (hardening tissue) CPS Current Population Survey Flow of workers in and out of employment is very large Most separations are quits (3/4 of separations) other quarter is layoffs Amount people move in and out of employment is very large relative to unemployment. Duration of unemployment is about 2-3 months Movements in unemployment In mid 80s unemployment seemed as if it was on rise However, trend reversed and we stabilized at a lower rate Year-to-year rates are correlated with recessions and expansions. How do these fluctuations affect individuals? o Fewer hires = less chance of employment, more unemployed, more applicants for jobs. Higher unemployment and very hard to move out of unemployment. o High layoffs employed are at a higher risk of losing their job Conclusion Higher unemployment rates entail. o Harder to find jobs o More chance of getting laid off Wage Determination Collective Bargaining firms and unions Facts o Workers are paid wage that exceeds their reservation wage (wage which would make them indifferent of working or not) o Wages depend on labor market conditions. Lower unemployment, higher wages Bargaining Bargaining Power o How costly is it to replace me by a firm? o How easy is it for me to find another job? Efficiency Wages Pay more than reserve wage Makes workers feel good about their job Encourage morale Wages, Prices, Unemployment W = P e F( u,z) (-,+) Aggregate nominal wage, W, depends on o Expected Price Level, P e o Unemployment Rate o Catchall Variable, Z, that stands for all other variables that may have an affect. Expected Price Level Workers do not care about how many dollars they receive but how many goods they can obtain with these dollars Firms care about this relationship as well Wages are set in nominal dollars Unemployment Rate U Higher unemployment weakens bargaining power, lowers wages Other Factors Z Things to consider here, o Unemployment insurance o Minimum wage level Price Determination Prices are set by firms based on their costs Production function Y = AN o Y output, A labor productivity, N Employment o (very simplified function) However, firms are not perfectly competitive price function o P = (1 + )W o Where is the markup of the price over cost o In perfectly competitive markets, = 0 Wage Setting Relationship...
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This note was uploaded on 02/23/2011 for the course ECON 325 taught by Professor Chugh during the Spring '08 term at Maryland.

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EXAM2 GUIDE - Macro Exam 2 13/05/2009 11:38:00 Chapter 6...

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