Lecture 4

Lecture 4 - Unemployment and the labour market Paper 2:...

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Unformatted text preview: Unemployment and the labour market Paper 2: Macroeconomics Part IIA Unemployment and the Labour Market Lecture #4 Mauricio Prado jmp200@cam.ac.uk November 4, 2010 Unemployment and the labour market Paper 2: Macroeconomics Part IIA Todays outline Flows of workers Job search and frictional unemployment Search model Unemployment and the labour market Paper 2: Macroeconomics Part IIA Flows of workers The Large Flows of Workers The Large Flows of Workers Average Monthly Flows Average Monthly Flows Between Employment, Between Employment, Unemployment and Unemployment and Unemployment, and Unemployment, and Nonparticipation in the United Nonparticipation in the United States, 1994 States, 1994-1999 1999 27 million (1) The flows of workers in and out of employment are large (2) The flows in and out of unemployment are large in relation to the number of unemployed (3) number of unemployed (3) There are also large flows in and out of the labor force, much of them directly to and from employment 5.8 million 1.5 million Unemployment and the labour market Paper 2: Macroeconomics Part IIA Literature for job search models Lecture notes. Mankiws Chapter 6. Chapter 3 of the book "Labor economics", by Pierre Cahuc, Andr Zylberberg. Unemployment and the labour market Paper 2: Macroeconomics Part IIA Job creation and destruction Consider a very simple version, where when unemployed, workers find jobs at rate . Assume as well that jobs are destroyed at the rate . We can determine the unemployment rate using the rates of job creation (worker finding a job) and job destruction. Unemployment and the labour market Paper 2: Macroeconomics Part IIA Flows L = E + U rate of unemployment is U / L U = E We know what employment is: E = L- U U = ( L- U ) U L = 1- U L Unemployment and the labour market Paper 2: Macroeconomics Part IIA Steady-state unemployment U L = + Suppose that 1 percent of the employed lose their jobs each month...
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Lecture 4 - Unemployment and the labour market Paper 2:...

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