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chapter 9 econ
| Question | Answer |
|---|---|
| potential workers | civilian non-institutional population (total population except children under 16, active military personnel, institutionalized persons like nursing homes or jail) |
| three categories of potential workers | employed, unemployed, not in labor force |
| Labor force | employed + unemployed |
| unemployed | ppl w/o jobs who have actively searched for one over the last 4 weeks and are currently available for work |
| employed | ppl w/ full time or part time job |
| not in labor force | ppls w/o paid job and not searching for one |
| labor market | where equilibrium real wage and quantity of labor are determined |
| supply of labor | determined by workers who want to maximize utility |
| labor demand | firms seek to maximize profit |
| marginal benefit (VMP L) (marginal product of labor) | value of the output produced by the last unit of labor. Shows the increase in revenue resulting from hiring an additional worker |
| Marginal cost (marker wage (w)) | the cost to the firm of an additional unit of labor. Also called the market wage (w). |
| maximizing profit | a firm maximizes profit by hiring the amount of labor that makes the value of the marginal product of labor equal to the market wage. (VMP L= w) |
| labor demand curve | a curve that depicts the relationship between the quantity of labor demanded and the wage. the value of the marginal product of labor because profit-maximizing firms hire workers until that value equals the wage. |
| quantity of labor | changes when wage rate changes |
| labor demand curve shift causes | changes in output price of the good or service, demand for the good or service, technological progress and high productivity, input prices of capital and land |
| labor supply | workers supply labor to optimally allocate their time between paid work, leisure, and other activities, like childcare and other home production |
| labor supply curve | a curve that depicts the relationship between the quantity of labor supplied and the wage |
| labor supply curve shifts when change is | tastes or preferences, opportunity cost of time working outside the home (cost of household work), population and demographics |
| equilibrium wage/market clearing wage (w*) | where labor supply and labor demanded curves intersect. Where they are equal |
| frictional unemployment | arises because workers and firms have imperfect information about each other and need to engage in a time consuming job search |
| structural unemployment | results from a persistent gap between the quantity of labor supplied, Ls, and the quantity of labor demanded Ld |
| wage rigidity | market wage, or minimum wage, (w) is held above the market clearing level (w*) |
| wage rigidity causes | minimum wage laws are imposed, labor unions negotiate higher wages, firms pay higher wages to raise worker productivity, workers resist wage reductions |
| efficiency wages | wages above the market clearing wage to increase worker productivity. they reduce worker turnover, reduce shrinking, motivate workers to work harder, and improve the quality of job applicants |
| cyclical unemployment | unemployment that relates to the cyclical trends in growth and production that occur within the business cycle. its the difference between the current employment (u) rate and its long term average (ū) |
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