Econ Reading 12 - Econ103 Macroeconomic Principles Fall...

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Unformatted text preview: Econ103 Macroeconomic Principles Fall 2009 Prof. Werner Baer DISGUISED UNEMPLOYMENT What is disguised unemployment and why are we interested in studying it? What it is By definition, the portion of the labor force that has marginal productivity (marginal product of labor) equal to 0 is considered disguisedly unemployed. Marginal productivity is the extra output one additional worker contributes to total output. Consider this example: If 100 workers are producing 100 chairs per day and you add one more worker to your labor force, but output stays the same. In this case, you are using 101 workers to produce 100 chairs. So, although you have increased your labor force, total output has not changed. Thus, marginal productivity of that last worker is 0. If, on the other hand, with 101 workers you would be producing 102 chairs, marginal productivity of the last worker would be 2. So, if we have disguised unemployment, we could get rid of the extra workers whose marginal product of labor is 0 and our output would stay the same. Why it matters When we talk about developing countries, we can use this principle to describe their agricultural sectors....
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This note was uploaded on 03/10/2011 for the course ECON 103 taught by Professor Staff during the Spring '08 term at University of Illinois, Urbana Champaign.

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Econ Reading 12 - Econ103 Macroeconomic Principles Fall...

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