Econ2102_Lecture4_handout

Employment macroeconomics 2nd ed copyright 2011 w w

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Unformatted text preview: ge: –  The labor supply curve shifts left. –  A worker receives less money and supplies less labor—this applies to any wage. –  In order to be in equilibrium, firms must raise wages. Employment Macroeconomics, 2nd Ed Copyright © 2011 W. W. Norton & Company, Inc 2 8/4/11 Ls Wage Ls w A w (1 Labor supply B )w Labor demand Ld L L A Change in Labor Demand •  Suppose the government creates regulations making it harder to fire workers. –  Firms will substitute capital for labour (i.e., demand fewer workers). –  Labor demand shifts left, causing wages and employment to fall. –  The unemployment rate rises initially and recovers as discouraged workers drop out of the labor force. Employment Macroeconomics, 2nd Ed Copyright © 2011 W. W. Norton & Company, Inc FIGURE 7.4 Wage Ls Labor supply A w B w Labor demand Ld Ld L FIGURE 7.5 L Employment Macroeconomics, 2nd Ed Copyright © 2011 W. W. Norton & Company, Inc 3 8/4/11 Employment/Pop in Australia 1960 ­2009 Wage Rigidities •  What is a wage rigidity? –  Wages fail to adjust after a shock to labor demand or supply. •  What happens if wages do not fall in the above demand shock example? –  The labor market will not clear and this results in a larger fall in employment and a rise in the unemployment rate Wage Ls Labor supply w w w A C w Labor demand Ld...
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