Chapter 6. Labor Market Analysis Gang Gong Copyright Notes: This electronic file is only used as a lecture notes for the student in this class. It is not allowed to be used for presentation anywhere else without the permission from the author
Chapter 6. Labor Market Analysis Gang Gong Copyright Notes:This electronic file is only used as a lecture notes for the student in this class. It is not allowed to be used for presentation anywhere else without the permission from the author
Introduction The objective of this chapter is to study how employment is determined in the labor market We are considering the labor market in which the following relation should always hold L=N+U above.L is the labor force. n the level of employment and u is the unemployed
Introduction • The objective of this chapter is to study how employment is determined in the labor market • We are considering the labor market in which the following relation should always hold: L = N+U Above, L is the labor force, N the level of employment and U is the unemployed
The Natural rate of Employment The Natural Rate of unemployment is the unemployment rate at which the economy is at equilibrium Please note the economy at equilibrium".It is not referred to single or few markets but all the markets in the economy at equilibrium. Therefore, it is quite possible that the unemployment rate is not at its natural level, even if the product and money e at equilib
The Natural Rate of Employment • The Natural Rate of Unemployment is the unemployment rate at which the economy is at equilibrium. • Please note “the economy at equilibrium”. It is not referred to single or few markets but all the markets in the economy at equilibrium. Therefore, it is quite possible that the unemployment rate is not at its natural level, even if the product and money markets are at equilibrium
Natural rate of Unemployment associated with the natural rate of unemployment is the natural level of employment and the natural level of output The natural level of output is also called the iull-employment output
Natural Rate of Unemployment • Associated with the natural rate of unemployment is the natural level of employment and the natural level of output. • The natural level of output is also called the full-employment output
Natural rate of Unemployment The natural rate of unemployment has very important policy implication. Generally,a government will not consider unemployment as being a problem if the unemployment rate is equal to or beyond its natural rate. Only if it is below its natural rate, it is then concerned by the government
Natural Rate of Unemployment • The natural rate of unemployment has very important policy implication. Generally, a government will not consider unemployment as being a problem if the unemployment rate is equal to or beyond its natural rate. Only if it is below its natural rate, it is then concerned by the government
Natural rate of Unemployment The determination of natural rate of unemployment. There exist some models that concern the determination of natural rate of unemployment. Generally, it is the institutional factors that are believed to determine the natural rate
Natural Rate of Unemployment • The determination of natural rate of unemployment. There exist some models that concern the determination of natural rate of unemployment. Generally, it is the institutional factors that are believed to determine the natural rate
Natural rate of Unemployment The determination of natural rate of unemployment the welfare policy of the government the structural of information transmission the industry concentration the power of labor union others?
Natural Rate of Unemployment • The determination of natural rate of unemployment: – the welfare policy of the government – the structural of information transmission – the industry concentration – the power of labor union – others?
The determination of Employment In Keynesian analysis the level of employment is determined by the level of output Note that this further implies that wage is not an important factor in the determination of employment
The Determination of Employment • In Keynesian analysis, the level of employment is determined by the level of output. • Note that this further implies that wage is not an important factor in the determination of employment
The determination of Employment Specifically, assume there is a production function Y=F(N Then the employment should be given by N=F(Y for the given output Y
The Determination of Employment • Specifically, assume there is a production function Y = F(N) Then the employment should be given by for the given output Y ( ) 1 N F Y − =
The determination of Employment assume a linear production function For a given output y, the employment is simply given by N=YA
The Determination of Employment • Assume a linear production function Y=AN For a given output Y, the employment is simply given by N=Y/A
