Chapter 14 The Labor Market in the Macroeconomy

Chapter 14 The Labor Market in the Macroeconomy - The Labor...

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The Labor Market: Basic Concepts Labor force=employed+unemployed Unemployment rate =U/LF A unemployed person must be out of a job and actively looking for work Unemployment rate will never be zero Frictional and structural unemployment are inevitable and desirable Frictional:due to normal working of the labor market; used to denote short-run job/skill matching problems Structural: due to changes in the structure of the economy that result in significant loss of jobs in certain industries Cyclical: increase in unemployment that occurs during recessions and depressions The Classical View of the Labor Market Classical economists believe that labor market always clears. If demand for labor shifts left, equilibrium wage rate will fall and anyone who wants a job at that wage rate will have one Always full employment The Classical Labor Market and the Aggregate Supply Curve Classical idea that wages adjust to clear labor market is consistent with view that wages respond quickly to price changes
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Absence of sticky wages, AS curve is vertical Unemployment Rate and the Classical View Unemployment is not necessarily a good measure of whether labor market is working well Explaining the Existence of Unemployment Sticky Wages The downward rigidity of wages Wages get stuck and do not fall when demand
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This note was uploaded on 12/18/2011 for the course ECON 201 taught by Professor Shea during the Spring '08 term at Maryland.

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Chapter 14 The Labor Market in the Macroeconomy - The Labor...

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