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LABOUR ECON
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- 1RESERVATION WAGEA reservation wage is the wage at which the agent is willing to supply a positive number of hours of work. At Rw, the agent is indifferent bewteen supplying 0 or 1+ hours. Represented by intercept on y axis.
- 2Labour supply with basic incomeIncrease of V, looks like income effect
- 3As long as what condition is met do we hire one more worker?One additional worker produces MPL(y), so we will hire so long as MPL*p > w.
- 4Labour demand in monopolyMR/p * MPL = w/p
Same as competitive equilibrium, just shifted towards equilibrium by factor MR/p < 1. This means lower employment and lower wages. - 5What is monopsony?Market structure in which a single buyer controls the market as a major purchaser: if the employer can et the wage, they are monopsonist.
A monopoly exists when a single individual or organization is the sole supplier of a particular good or commodity, whereas a monopsony refers to control of the market through which specific goods or services are purchased. - 6Profit maximization in monopsonyp * MPL = MCL
NB: Marginal cost of labour is always higher than the wage, since the monopsonist can only hire workers by offering a higher wage. - 7Why is MCL higher than wage in monopsony?Because to hire one more person, higher wage must be offered. This is a combination of two things: higher wage for all and purchase of one more worker.
- 8Effect of minimum wage in perfectly competitive marketIf minimum wage is higher than equilibrium wage, this will create true unemployment.
- 9Card & KruegerMonopsonist environment with minimum wage will see rise in employment for minimum wage. This is because MCL is flat at minimum wage until labour supply curve (L), so since the MCL is constant until L (no rise of wage per new worker until L) the employment rate will in fact rise under minimum wage.
There are minimum wages at which labour supply will actually decrease. If minimum wage is under perfect competitive equilibrium. If it is over, it will decrease.
But, teens in fast food industry as proxy is biased! - 10Profit function and maximization problempi = p * Y(K,L) - wL - cK
1. p * dY/dK - c = 0
2. p * dY/dL - w = 0 - 11Ways to accumulate education?Informally through family
Training
Schooling
Learning by doing - 12Why are most students young?Because it takes time and patience (low r) to compensate for foregone earnings and costs that are accumulated while studying.
- 13Economic vs political migrantsAfter several years, political migrants tend to earn more than economic ones notably due to the fact they have smaller chance of fleeing back to their country of origin and have incentive to fully integrate in their new country.
- 14Migration & UnemploymentWe must view migrants and natives as complements of eachother (if supposed as substitutes willing to work for a lower wage, yes this will be a problem).
Actually, if more blue collars are available and working, the need for white collars also increases so higher employment and wage via higher demand.
Unskilled natives often end up getting more education an becoming upskilled. - 15Country equality / inequalityCountries of high inequality are high destinations for highly educated migrants, and lower inequality countries will be better for lower skilled workers. Threshhold between country A and B depends on skills.
- 16WelfareWelfare affects composition of migration tissue and may induce migration polarization depending on the extent of welfare and condition on origin country.
- 17CMS and labourOriginal study claims 16% increase in lifetime earnings on avg. Bias due to sample selection; people who complete training are already skilled.
CMS has no direct impact on wages. - 18Names and NeighbourhoodRacial gap in callback . And AA and whites benefit as much as each other for living in better neighborhoods.
Whites 50 % more callbacks. - 19(un)Employment & inactivity1. actively looking for a ob
2. available for work
3. not employed during reference week
employment:
1. has worked at least one hour in reference week
inactivity:
not employed, not searching, not available - 20Labour ForceLabour force is composed of employed and unemployed people. Used for employemnt rate computation.
LFPR = LF / working age pop - 21Labour SupplyPeople supplying hours of work, based on their preference (utility) and budget line derived by work. Graph: x axis: hours. y axis: wage/money income
- 22Slope of agent's indifference curve (U)MRS = - MU(l) / MU(y)
- 23Flatter vs steeper ICA steeper IC is for a person who places high value on an extra hour of leisure
- 24Budget Setp C + w L = w T + V
p C = w H + V - 25MPL ComputationdY / dL
- 26Perfect Competition L?1. Find MPL = dY/dL
2. FOC MPL = w/p - 27Finding Budget Curve InterceptsX axis: time endowment T
Y axis: rewrite BC with C = aL + b
b is intercept - 28Optimal Choice for supplier of labourw / p = MU(l) / MU(y)
- 29Income EffectRise in V, CP. A parallel shift of BC. Incentive to consume more leisure and offer less labor.
- 30Substitution EffectEffect of a w increase CP. Increase of OP of Leisure & value of time endowment, incentive to work more.
Just variation in BC slope w / p. - 31Income VS Substitution EffectSub > Inc -> people will offer more work
Usually income > sub if agent works a lot
If H = 0, no income effect
Stong income effect can provoque the labour supply curve to curve back. - 32BC slopew / p
- 33Reservation wagey axis intercept, w at which agent is indifferent between supplying 0 or 1+ hours of work
- 34Optimal Consumption (find C and L)1. MRS = w/p
2. Solve C(L)
3. Replace in BC
4. Solve C and L - 35What V would cause agent to drop out of labour force?1. MRS = w / P
2. Derive C(L)
3. L = T --> Solve C
4. p * C = V - 36When do we hire an additional worker?So long w < MPL *p
- 37Perfect competition labour demand optimality FOCw / p = MPL
- 38Competitive assumptions madeMany identical firms freely operating in same institutional environment. Many identical workers. p and w are constant for all.
- 39Minimum wage in perfect competitionif min w is higher than equilibrium it will generate unemployment.
- 40Minimum wage monopsonyIf minimum wage is set between competitive equilibrium and monopsony equilbrium, the minimum wage will raise employment because it sets MC to a constant until that min w L.
- 41Labour demand optimalTangent between isoqant (Y(K,L)) and isocost (TC = w L + r K)
w/r = MPL/MPK - 42Search and Matching model intuitionAsymmetric information may prevent vacancies from being filled which is the general friction generating unemployment
- 43Matching functionFunction encompassing meeting probabilities
M = m (U, V)
CRS - 44Market tightnessteta = V / U
q(teta) = p a vacant job finds a worker
q(teta)teta = p a worker finds a vacancy - 45x ( 1 - u )Share of people at every point in time losing their job
- 46u *Found by equating inflows and outflows and solving for u *
u * = x / (q(teta)*teta + x)
Equation between market tightness and u known as Beveridge Curve (BC) - 47Beveridge CurveUnemployment declines across beveridge curve
- 48Rate r and patienceA higher r is associated to more impatience and hence less time investment.
Patient people will get highest returns. - 49How can firm maximize profits if it is offering same wage to both type of individuals?It can do so by offering the wage that equals the utility of not working, assuming they would work for that wage.
- 50At seperatng equilibrium (Ah goes to college) how do you max profits?To find
the profit maximizing wage policy among the set of separating policies, let us consider the
smallest wage that would still induce the H workers to go to college? Find wage such that by going to college and working their utility is equal to utility of not working. - 51How much non labour income would drive the agent out of the market?p * C(24) = v
- 52How do you compute MPK and MPL?dY / dL
dY / dK - 53MRS orderMRS = - MUx / MUy
- 54MCL = ?MCL = d TC / d L
- 55Expected profit in signalling model?E (pi) = %i (ai - wi) + %i (ai - wi)
- 56Unions: don't intervene, perfect competitionLdu + Ldn = Lsu + Lsn
Common wage
L depends on U or N - 57Unions don't intervene, but there is no free movementPerfect competition within U and N
- 58If union acts as a monopolist, no free movementNothing will happen in non union
L (w*), probably will be unemployment within union - 59Free movement in unionWorkers will move from U to N until w = w(competitive equ)
- 60How to solve L and w when Ld is a monopsony? Steps1. MPL
Take Ld (w) and replace w in the expression by MPL. Transform to express MPL(L).
2. MPC
Ls(w), transform to w(L).
Total costs = w(L) * L
MCL = d TC / dL
3. FOC
MPL = MCL/p - 61Describle matching functionincreasing in U and V and concave. Captures intuition that not all workers (vacancies) find a vacancy (woker) and that there are frictions.
- 62Derive IC curve from U1. Express C(U,L)
2. MRS is slope - 63Efficient bargaining modelEquilibrium is at union IC and union demand curve (express w(L)) .
MRS = slope w(L) - 64How to check for unemployment?find L* and do Ls (w*) - L*
- 65Labour Supply optimal choiceMRS(x,y) = w / p
- 66Labour demand FOCpi = p * Y(K,L) - wL - cK
dpi / dY = 0
dpi / dK = 0 - 67MPL derivationdY(K,L) / dL
- 68Competitive Labour demandw / p = MPL
- 69Monopolistic Labour DemandMR/ p * MPL = w/p
- 70Monopsony labour demandMPL = MCL / p
- 71Effect of minimum wageOn competitive market: creates unemployment
In a monopsonistic market, if minimum wage is set between equilirbrium wage and competitive equilibrium wage, it will raise employment. - 72Labour demand FOCw / r = MPL / MPK
- 73Effect of WWII on female labour supplyUsing WWII mobilization rates as instrument, research finds that states with highes mobilization rates experienced an increase in female labour supply. This effect is concentrated on highly educated women.
- 74Two labour markets, no intervention, free movement: what is employment?Find common w and derive L* via Ld
- 75Marginal revenue derived from an additional workerMPL X p
MPL is marginal output, *p is marginal revenue.
- Costs for marginal profit - 76Efficient bargainingw-L plane, take
Ld, transforme w(L) -> slope
U -> MRS
slpe = MRS
Replace in demand function and derive w - 77NSCRelationship describing for each level of unemployment the lowest possible wage at which the worker finds it optimal to exert effort (not to shirk). If the wage is lower, the worker will shirk. Output will be 0.
- 78Job polaizationIncrease in employment in very low and very high skill/wages. Emergence of U-shaped relation between skill and employment shares and share in medium jobs decreases (automatization). This implies wage polarization as well and this increases wage inequality!
- 79Budget Line euqationdo BC
then do
C(L) = a L - b - 80Find p probability rendering individual indifferent between migrating or not with risk of going to prison?PVDPrison * p + PVDNoPrison * (1-p) = PVDHome
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- Fichas sobre LABOUR ECON, creado por Jessica Rey el 17/12/2018.
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