Chapter 7 - 7.1 Introduction In this chapter we learn...

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1 Chapter 7 The Labor Market, Wages and Wages, and Unemployment Charles I. Jones 7.1 Introduction • In this chapter, we learn: – How a basic supply-and-demand model helps us understand the labor market. – How labor market distortions like taxes and firing costs affect employment in the long run. 7.1 Introduction • In this chapter, we learn: – How to compute present discounted values – How to value your human capital. – Why the return to a college education has risen enormously over the last half-century. 7.2 The U.S. Labor Market • In the U.S. labor market – Wages account for two-thirds of per capita GDP. – Average wages have grown at 2 percent per year for the last century. • The employment-population ratio – The fraction of the civilian population over the age of 16 that is working • This ratio: – Has been increasing over time in large part due to the entry of women into the workforce. – Decreases in times of a recession.
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2 • The unemployment rate – The fraction of the labor force that is unemployed • A person is unemployed if the following conditions hold: – She does not have a job that pays a wage or salary. – She actively looked for a job during the four weeks before measuring the unemployment rate. – She is available to work. The Dynamics of the Labor Market • Job creation and job destruction in the United States – Occur each month – Are part of normal changes in the economy • For most people, periods of unemployment are relatively short. • People who are unemployed for long periods account for most of the total Unemployment weeks of lost work. • Many countries have developed social safety nets. 7.3 Supply and Demand • The labor demand curve slopes downward because of diminishing marginal product of labor (MP L ). • The labor supply curve slopes upward because the price of leisure is higher when wages are higher. • The intersection of labor supply and demand determines the level of employment and the wage rate.
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3 A Change in Labor Supply • If the government collects a tax on a worker’s wage: – The labor supply curve shifts left. A worker receives less money and supplies – A worker receives less money and supplies less labor—this applies to any wage. – In order to be in equilibrium, firms must raise wages. A Change in Labor Demand
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This note was uploaded on 08/23/2011 for the course ECON 3203 taught by Professor Robertpennington during the Summer '11 term at University of Central Florida.

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Chapter 7 - 7.1 Introduction In this chapter we learn...

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