This website uses cookies to ensure you get the best experience on our website. Learn more

Economics Notes Macroeconomic Principles Notes

Unemployment Notes

Updated Unemployment Notes

Macroeconomic Principles Notes

Macroeconomic Principles

Approximately 260 pages

In depth, typed notes covering the Macroeconomic Principles (EC210) course at LSE (London School of Economics). Covers the full content of the course including the following topics:

- Economic Measurement
- Economic Growth
- The Malthusian Model
- The Solow Model
- Endogenous Growth Models
- Consumption
- Ricardian Equivalence
- Credit Market Imperfections
- Investment
- Unemployment
- Issues in the Labour Market
- The Dynamic Macroeconomic Model
- The Dynamic Monetary Model
- Bus...

The following is a more accessible plain text extract of the PDF sample above, taken from our Macroeconomic Principles Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

Unemployment Topics * Labour market measurement and patterns in the OECD * The efficiency wage model * A search model of unemployment Reading Labour Market Measurement and Patterns in the OECD * Working-age-population: P=L+NL * Labour force: L=E+U * Participation rate: L/P * Unemployment rate: u=U/L * Aren't employed but actively searching for work * Employment rate: E/P * Working part-time or full-time Diagram showing different parts of the labour market Key Points * Labour market measurement * Sticky wages * Efficiency wage model * Why does effort increase with real wage * Wage optimization * Graphical wage optimization * What does equilibrium wage depend on? * Effects of G increase on labour * Effects of TFP increase on labour * Search model of unemployment * Dynamics of unemployment rate * Steady state unemployment rate * Dynamics of unemployment rate with new entrants * Steady state unemployment rate with new entrants * Value of being employed * Value of being unemployed * * Reservation wage * Effects of unemployment benefit increase * Effects of income tax increase * Job finding rate * Wage offer * Graphs demonstrating US and international labour market * Explanation for unemployment in a competitive model * Given market wage rate = w* * Labour supply is higher than labour demand * Therefore positive unemployment Graph demonstrating positive unemployment * Effects of unemployment benefit increase on job finding rate * Effects of increase in job finding rate Definitions * Reservation Wage = The lowest wage offer that an unemployed worker is willing to accept * Sticky Wages = Where employers refuse to cut wages so have to cut labour instead Formulae * * * * * * * However, because the market wage is flexible it should fall to w** and clear the labour market * This will mean there is no unemployment * The theory prior to 1950's was that unemployment was due to sticky wages * Sticky Wages = Where employers refuse to cut wages so have to cut labour instead * The labour market was not clearing * * * * * The Efficiency Wage Model * Worker effort | with real wage rate * Due to adverse selection and moral hazard * Produces a stickiness in real wage * Why Adverse Selection? * Higher wages attract better workers * Firm doesn't know which workers are good and which will apply * So higher wages to attract better applicants * Higher wages retain better workers * Better workers get headhunted * Higher wage stops them quitting and saves firm search/training costs * Why Moral Hazard? * Higher wages increase value that workers attach to their job * Workers will be more careful not to be lazy, be found out or fired * The efficiency wage model lets us represent the idea that higher wages make workers more keen to do well * Assume that worker effort is a function of wage Graph showing effort of the worker as a function of wage Course Notes Page 36 * Change in unemployment = Inflow - Outflow * Effective units of labour: * Employment rate: E/P * Job finding rate = * Labour force: L=E+U * Maximize: * Participation rate: L/P * Production function: * Unemployment rate: u=U/L * Value of being employed at wage w = * We suppose * Working-age-population: P=L+NL

Buy the full version of these notes or essay plans and more in our Macroeconomic Principles Notes.