Caused by shortrun nominal wage rigidices nominal wage

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Unformatted text preview: markets to answer why there is unemployment in equilibrium. Sources of these rigidiCes are: •  Gov’s policies: minimum wages and tax wedge •  Trade unions •  Insiders and outsiders •  Efficiency wages •  FricCons Structural labour market policies: reform of the unemployment benefit system, the educaConal system, the tax system, collecCve bargaining,… (2) Short ­run or cyclical unemployment. Caused by (short ­run) nominal wage rigidiCes. Nominal wage rigidiCes explain temporary displa ­ cements of unemployment from equilibrium. Source of these rigidiCes: long ­term contracts. StabilizaCon policies: fiscal and monetary policies. Gov’s polices: minimum wages If regulaCons prevent the wage from falling below wmin the labour market cannot clear. Employers facing higher unit labour costs (wage costs per unit of output), reduce their demand for labour to LD. Workers expand their supply of labour to LS. In order t...
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This note was uploaded on 03/11/2013 for the course ECON ES20013 taught by Professor Martin during the Spring '12 term at University of Bath.

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