Blch61The labor market•IS-LM model of last section was based on 3 simplifying assumptions:-No expectation-Closed economy i.e. no international sector-Short run implying fixed prices•Only 2 kinds of markets were considered-The financial markets-The goods market•We now introduce-A third market: the labor market-The medium run implying flexible prices
Blch63Additional labor statistics•Broken down by– Age group– Skills - education levels– Race and sex•Is there a dual labor market based on level of education?
Blch64Stock versus flow statistics•The flows offer a better illustration of the actual situation in the labor market•The same unemployment rate could correspond to– Many people going in and out of N each month– The same people remaining unemployed for yearsi.e. a very flexible versus a sclerosed labor market •The flow data are collected in the Current Population Survey (average monthly data 94-99)
Blch66N127U7NL66.71.3 - discouraged1.1 - try again
Blch67Further statistics based on flows•Monthly flows in and out of UIN from N from NL Total Pool in U1.5 1.1 2.67OUT to Nto NL Total1.8 1.3 3.1•Probability of unemployed leaving U each month:3.1 / 7 = .44•Probability of unemployed finding a job each month:1.8 / 7 = .26•Average duration of unemployment:1/.44 = 2 months 1/4