Western european countries have been suering high

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Unformatted text preview: been suffering high rates of unemployment for almost two decades. Unlike the United States, many European countries have high unemployment (nearly double the U.S.) and slow job creation. 6. Following the Great Recession many countries have had persistently high unemployment rates. Additionally, many of the unemployed have been unemployed for a long period of time (more than 27 weeks). Ryan W. Herzog (GU) Labor Market February 5, 2014 5 / 40 Trends in the Labor Market Labor Market The foundation of our analysis will be the supply and demand functions applied the labor market. Firms constitute the demand for labor. Firms hire workers as long as the marginal benefit (additional output) exceeds the cost (wage). Households constitute the supply of labor. Households must choose the utility maximizing level of labor and leisure. Ryan W. Herzog (GU) Labor Market February 5, 2014 6 / 40 Trends in the Labor Market Labor Market in Equilibrium (Figure 5.1) Figure : Labor Market in Equilibrium Ryan W. Herzog (GU) Labor Market February 5, 2014 7 / 40 Supply and Demand in the Labor Market Labor Demand Firms are the demanders of labor. First must choose the optimal level of labor which comes down to the marginal benefit and marginal cost of each additional worker. The marginal benefit of hiring the next worker is referred to as the marginal productivity of labor or (MPL). The marginal productivity of labor represents how much additional output the next worker produces (∆Output /∆Labor ). We assume the MPL is decreasing. Each worker is less productive than the previous worker. A concept called diminishing marginal returns. A firm will hire the next worker as long as the value of the MPL is greater than the wage. Ryan W. Herzog (GU) Labor Market February 5, 2014 8 / 40 Supply and Demand in the Labor Market Constructing Labor Demand (Table 5.1) Table : Production and Marginal Product for Computers Number of workers 0 1 2 3 4 5 6 7 8 Ryan W. Herzog (GU) Computers Produced 0 50 9...
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This document was uploaded on 03/18/2014 for the course ECON 202 at Gonzaga.

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