Janka Elective Seminar

Types of equilibrium unemployment:

frictional, structural, natural, NAIRU

NAIRU stands for:

Non-accelerating inflation rate of unemployment

Types of disequilibrium unemployment:

classical (neoclassical), cyclical (Keynesian)

Frictional (search) unemployment occurs when people

leave their jobs and are unemployed for a period of time while they are looking for a new job

Frictional (search) unemployment occurs as a result of

imperfect information the labour market

when Frictional (search) unemployment occurs

it takes time for workers to find jobs even though there are vacancies

Types of theories of unemployment:

Neoclassical, Keynesian, Job Search, Natural rate of unemployment, NAIRU, Beveridge curve

heterogenous means

diverse in character or content

Job offers are heterogenous in terms of

wage levels and skill requirements by employers

Job seekers are heterogenous in terms of

skills possessed and wage aspirations- reservation wages

What is a reservation wage

the lowest wage rate at which a worker would be willing to accept a particular type of job

Frictional unemployment can be reduced if

the duration of matching is reduced

The job sample is

the number of job offers considered by a job seeker

The higher the wage aspirations,

the higher reservation wage

The model of the reservation wage explains the importance of

the reservation wage and the level of skills for job search

The model of the reservation wage explains how

the level of reservation wage and skills impact the chances to find jobs

The model of the reservation wage indicates

how the unemployed behave in the process of job search

list of markets in the economy:

goods market, money (monetary) market, capital market, investment market, land market, labour market

Labour market- definition:

a place where buyers and sellers of labour come together to determine the pricing and quantity of labour services contracted; a place where labour services are sold and bought

Economic units in the labour market:

employees, employers, unemployed, trade unions, employers unions, labour offices

different types of the labour market (geographical dimensions):

national, regional, local

2 most essential features of the labour market:

heterogeneity of labour services, mobility of labour

heterogeneity of the labour services means people

differ in terms of their skills, motivations, and willingness to take risks

heterogeneity of the labour services means employers

look for employees with certain skills and occupations

mobility means

ability and readiness of people to change their position in the labour market (by changing their skills, places of work, occupations, places of residence)

mobility provides

links between different labour markets (people move from one labour market to another)

types of labour mobility

occupational, educational, skill, spatial

The pecuniary rewrds from selling labour supply are

wages and salaries; fringe benefits (employer provided health insurance, e

The non-pecuniary rewards from selling labour supply are

a pleasant and safe working environment

pecuniary means

relating to or consisting of money

nominal wages

the amount of money paid to the workers in current dollars

real wages

nominal wages divided by some measure of prices

the labour supply curve depicts

an amount of labour which individuals are willing to supply

The labour demand curve depicts

an ammount of labour which an individual firm or a group of firms is willing to hire

Theory of marginal productivity

as more of variable factor of production is used in conjunction with a fixed factor of production- the output of each successive unit of the variable factor will diminish

The total population is comprised of

the working age population and the non working age population

The working age population is comprised of

the economically active and the economically inactive

The economically active are comprised of

the employed and the unemployed

The labour supply consists of

the economically active, or the employed and the unemployed

The labour demand consists of

the employed and the open vacancies

in equilibrium the

labour supply and labour demand are equal

Labour market economics is a part of

economics focused on the analysis of economic processes in the labour market

Labour market economics tries to discover

relationships and regularities in the labour market

The micro approach is the study of

behavious of employees and employers in respose to the general incentives of wages, prices, profits and nonpecuniary aspects of the employment relationship

The macrop approach is the study of

the labour market as a whole

types of labour market indicators

absolute and relative; stock and flow

absolute indicators are based on

absolute variables, for example total unemployment, number of employees fired

relative indicators are

expressed in percentages, and are relations between two absolute variables, for example unemployment rate

Absolute indicators are used to show

tendencies in the investigated labour market

relative indicators are used to

compare different labour markets

stock indicators are based on

stock variables, for example: number of employed, unemployment rate

flow indicators are based on

flow variables, for example: number of employees fired, inflow rate into unemployment

The activity rate shows

the proportion of working age persons who are able and ready to work

The labour force is comprised of

people who are able and ready to work

The unemployment rate shows

the proportion of people at working age, able and ready to work who are unemployed

The unemployment rate indicates

the share of unemployed in total labour force

employers are

profit maximizing units

if wages are flexible

there is a tendency to equalize labour demand and labour supply

unemployment can exist if wages are

not flexible and too high

aggregate means

formed or calculated by the combination of several separate elements; total.

NAIRU is a type of

equilibrium unemployment which stabilizes inflation

AUR stands for

actual unemployment rate

if AUR > NAIRU

we have decreasing inflation

if AUR < NAIRU

we have increasing inflation

if AUR = NAIRU

we have stabilisation of inflation

in order to reduce inflation

AUR needs to be > NAIRU

How can the government keep AUR above or below NAIRU?

using macroeconomic policies (fiscal and monetary) to influence level of aggregate demand for goods and the level of actual unemployment

in order to have effective counterinflation policy

one must accept unemployment as its social cost

DRW stands for

Real wage rates demanded by employees

RWR stands for

real wage rates (which are in line with the economic possibilities of the economy)

the NAIRU level of unemployment is when

real wage rates demanded = realistic wage rates

the higher labour productivity

the higher level of RWR

the faster technical progres

the higher level or RWR

the better situation in the balance of payment in the country

the higher level of RWR

the higher AUR

the lower DRW

the higher generosity of the social policy

the higher DRW

the higher share of long-term unemployment

the higher DRW

the bigger the imbalance in the labour market

the higher DRW

The higher the labour productivity

the lower the level of NAIRU

As a result of unemployment and inactivity, there is a reduction of

the stock of skills or labour force

The Unemployed with reduced skills have

lower chances of finding jobs

the longer the duration of unemployment

the bigger reduction of skills

there is a relationship between GDP growth and

the change in unemployment rate

Okun's Law states that

1% more output growth leads to a reduction in the unemployment rate of 0.4 percent

the replacement ration is a ration between

the level of unemployment benefit and the level of wages or salaries while employed

higher unemployment leads to

lower inflation

unemployed are people

able and ready to work; out of work; looking for jobs

short-term unemployment

< 3 months

medium-term unemployment

4-12 months

long-term unemployment

> 12 months

open unemployment is

unemployment seen in official statistics

hidden unemployment is

the opposite of open; example: part-time workers who would like to work full-time

voluntary unemployment happens when

people are unsatisfied with their current wage

involuntary unemployment happens when

people want to work but they cannot find jobs because of insufficient aggregate demand for goods

short run technological unemployment results from

the impelentation of new technologies which crowd off labour

definition of unemployment policy:

a number of activities and tools taken by the state in order to reduce unemployment

main areas of unemployment policies taken by the state

macroeconomic policy; labour market institutions; labour market policy

Macroeconomic policy consists of the monetary policy which is

run by the central bank

macroeconomic policy consists of the fiscal policy which is

run by the government

restrictive monetary and fiscal policies

reduce the level of aggregate demand

stimulative monetary and fiscal policies

increase the level of aggreagate demand

LMI stands for

labour market institutions

LMIs have influence over

economic units (employers, employees, the unemployed)

economic unit's (employers, employees, the unemployed) decisions have influence over

employment, unemployment and wage changes

Active Labour Market Policy (ALMP)

aimed at improving the situation in the labour market and reducing unemployment

Passive Labour Market Policy (PLMP)

aimed at moderating (mitigating) negaative effects of unemployment