Lec5 - Finance 101: Monetary Economics & the Global...

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Finance 101: Monetary Economics & the Global Economy Lecture 5 The labor market Prof. Hnatkovska Fall 2011
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FNCE 101 - Hnatkovska - Lecture 5 2 Outline Labor demand Labor supply Labor market equilibrium Are the French lazy? Special topic: jobless recovery
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FNCE 101 - Hnatkovska - Lecture 5 3 Readings ABC, chapters 3.2 – 3.4 1. Joblessness in America: A stickier problem. The Economist, Aug 26th 2010 2. Labour-market trends: Winners and losers. The Economist, Sep 10th 2011 3. The great mismatch. The Economist, Sep 10th 2011 4. The land of leisure. The Economist, Feb 2nd 2006 5. Five reasons to embrace migrants. The Wall Street Journal, JULY 17, 2011. 6. Jobs are evolving, not becoming obsolete. The Economist, Sep 15th 2011. 7. Has Structural Change Contributed to a Jobless Recovery? Current Issues in Economics and Finance, NY Fed. http://www.ny.frb.org/research/current_issues/ci9-8/ci9-8.html
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Practice problems ABC chapter 3 Review questions 6, 7, 9 Numerical questions 3, 5, 6 Analytical questions 2, 4, 5 FNCE 101 - Hnatkovska - Lecture 5 4
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Tea with the economist Peter Diamond on jobs in America http://www.economist.com/audiovideo?fr_chl=8c9fb7cb6ccca6fb5c FNCE 101 - Hnatkovska - Lecture 5
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FNCE 101 - Hnatkovska - Lecture 5 Labor Market Roadmap: Demand and Supply 3 main concepts: 1. Firms decide the optimal amount of labor to hire: Firm Labor Demand. If you aggregate (i.e. add up) those decisions you obtain the Aggregate Labor Demand. 2. Individual decision on optimal amount of leisure ( = 1-N) to consume (and hence how much to work): Individual Labor Supply If you aggregate those decisions you obtain the Aggregate Labor Supply. 3. Classical representation of the Labor Market Equilibrium: Aggregate Labor Demand = Aggregate Labor Supply Note: no unemployment (real wages can adjust).
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FNCE 101 - Hnatkovska - Lecture 5 7 Labor demand Labor demand How much labor do firms want to use? Assumptions Hold capital stock fixed - short-run analysis Workers and firms are all alike Firms maximize profits Note Labor denotes total hours worked – we do not distinguish between employment and hours per worker for the moment
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8 Labor demand Firm’s objective: max N Profits= max N [Y(A,K,N) – w*N – ρ *K] Optimality condition: ∂Profits/∂N = 0 ∂Y/∂N = w Example with Cobb-Douglas Y = AK a N 1-a ∂Y/∂N = (1-a)AK a N -a = (1-a)Y/N = w Aggregate labor demand = sum of firms’ labor demands MPN
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This note was uploaded on 10/26/2011 for the course ASDF 2342 taught by Professor 2adga during the Spring '11 term at Mansfield University of Pennsylvania.

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Lec5 - Finance 101: Monetary Economics & the Global...

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