Y fk l divide by labour to obtain yl fkl 1

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Unformatted text preview: sain Macroeconomics ECON2000 Fall 2013 targeted since most minimum- wage earners are teenagers from middle- class home, not heads of households working to support a family. Many economists believe that a refundable income tax credit, an amount that poor working families are allowed to subtract from taxes they owe, is a better way to increase the incomes of the working poor. It does not raise labour costs to firms and therefore does not reduce the quantity of labour that firms demand. However, it does decrease the government’s tax revenue. Unions and collective bargaining: wages of unionized workers are determined not by the equilibrium of supply and demand but by bargaining between union leaders and management. Often, the wage is above equilibrium and results in an increase in structural unemployment. A firm may also pay above- equilibrium wages so that its workers do not unionize. The unemployment caused by unions is an instance of conflict between groups of workers: insiders, those employed by the firm, try to keep wages high, while outsiders, the unemployed, bear part of the cost of higher wages because at a lower wage they might be hired. Efficiency wages: efficieny- wage theories hold that high wages make workers more productive. One efficiency- wage theory holds that wages influence nutrition, so better- paid workers are healthier and more productive. A second theory is that high wages reduce labour turnover, which decreases costs of hiring and training. A third holds that the average quality of a firm’s work force depends on the wage it pays its employees. High wages attract the best candidates. A fourth theory holds that a high wage improves worker effort by increasing the cost to the worker of getting fired. It compels them to work hard and increase productivity. Labour market experience: Canada Duration of unemployment: Economists decompose the unemployment rate intwo two components: incidence, the likelihood that an individual suffers an unemployment spell, and duration, the average length of that spell. It could be that duration is low and incidence is high or vice versa. Stats Can has estimated that two- thirds of any increase in the unemployment rate is due to longer duration and one- third to higher incidence. Variation in the unemployment rate across age groups and regions:...
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