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7.1 Introduction
In this chapter, we learn:
How a basic supply-and-demand model helps
us understand the labor market.
This ratio:
Has been increasing over time in large part due
to the entry of women into the workforce.
Decreases in times of a recession.
Unemployment
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Wage Rigidity
Wage rigidity
Wages fail to adjust after a shock to labor
demand or supply.
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women working
Supply shocks
Changes in social norms
Changes in technology for managing fertility
Demand shocks
Reduced discrimination against women
Historically:
Rising unemployment in the 1960s and 1970s
Decline in unemployment in the 1980s
Possibly explained by the baby boom
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Different Kinds of
Unemployment
Cyclical unemployment
The difference between the actual rate and
the natural rate
Associated with short-run fluctuations in
output
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E and
unemployment U
Model states how employment and
unemployment evolve over time
Analogy: water entering and draining a bath
tub at the same rate
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Two equations:
employment
change in
unemployment
unemployment
job separation
rate
size of
labor force
job finding
rate
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Or:
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Early 1900s
Most inequality associated with capital income
Recently
Most inequality associated with salaries and
business income
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Summary
The labor market is arguably the most important
market in an economy.
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Examples of factors:
Oil shocks and productivity slowdown of the
1970s
Inefficient labor market institutions
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Possible explanations:
skill-biased technical change
globalization
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