unemployment - Topic 8: UNEMPLOYMENT PRINCIPLES OF Click to...

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Click to edit Master subtitle style Topic 8: UNEMPLOYMENT Dr. Fidel Gonzalez Department of Economics and Intl. Business Sam Houston State University PRINCIPLES OF MACROECONOMICS
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Labor Market The labor market is an important part of the economy because it tell us if people are getting jobs and therefore have incomes to support their families. The labor market is like any other market where according to our circular flow of the economy firms demand labor (that is hire workers) and households supply their labor (that is offer their services to firms). Therefore, the demand for labor (how much labor firms want to hire) depends on the wage they have to pay for it. The higher the wage the lower the amount of labor the want to hire. On the other hand, the amount of labor supplied by households depends also on the wage (among other things), the higher the wage the higher the amount of labor that households are willing to provide. The following diagram shows that Demand and Supply of Labor in the economy Labor Supply (SL) Labor Demand (DL) L* Quantity of Labor Wage W* W* and L* are the equilibrium Wage and Labor in the economy. There is no unemployment.
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Labor Market and Unemployment However, there will be unemployment when the amount of labor supplied at a certain wage is higher than the amount demand at that wage. In our labor market graph, it will look as follows: Labor Supply (SL) Labor Demand (DL) DL1 L* SL1 Quantity of Labor Wage W* At the wage W1, the firms are willing to hire only DL1 and SL1 household are offering their services. Therefore, there are more people than jobs and this produce unemployment. To reduce unemployment the wage has to go down to W*. W1 Unemployment
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2) Unemployed= actively seeking for a job and did not work the previous week. 3) Not in the labor force= anyone that is not employed or unemployed (full-time students, home workers, etc.) 4) Labor Force= Employed + Unemployed Three important indicators when looking at unemployment: length or average worked week, duration of unemployment and unemployment rate. First, we need some definitions: 1) Employed= spent some of the previous week working at a paid job. 5) Adult Population (15-65) = Labor Force + Not In the Labor Force 6)Labor Force participation rate = Labor Force / Adult Population The labor force participation rate tells us the percentage of people in the adult population (or working age) who want to work. In real life it is hard to look supply and demand for labor. So, we try to look at indicators that can tell us how is the labor market doing. We want to know if people are finding jobs or not and how easy is to find these jobs. All of these can tell us how healthy is the job market. Therefore we have developed an important tool: the unemployment rate.
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This note was uploaded on 06/06/2011 for the course ECON 233 taught by Professor Fidel during the Fall '10 term at Sam Houston State University.

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unemployment - Topic 8: UNEMPLOYMENT PRINCIPLES OF Click to...

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