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Projekt : „Odpowiedź na wyzwania gospodarki opartej na wiedzy: nowy program nauczania na WSHiP”.

Projekt : „Odpowiedź na wyzwania gospodarki opartej na wiedzy: nowy program nauczania na WSHiP”. Projekt współfinansowany ze środków Unii Europejskiej w ramach Europejskiego Funduszu Społecznego. A ggregate S upply – A ggregate D emand Model. MEDIUM RUN ANALYSIS.

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Projekt : „Odpowiedź na wyzwania gospodarki opartej na wiedzy: nowy program nauczania na WSHiP”.

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  1. Projekt : „Odpowiedź na wyzwania gospodarki opartej na wiedzy: nowy program nauczania na WSHiP”. Projekt współfinansowany ze środków Unii Europejskiej w ramach Europejskiego Funduszu Społecznego.

  2. Aggregate Supply – Aggregate Demand Model MEDIUM RUN ANALYSIS

  3. LABOUR MARKET – INTRODUCTION INTO AS-AD

  4. Neo-classical model of labour market Assumptions: Labour supply is positively correlated with the real wage. Labour demand is negatively correlated with the real wage.

  5. What are the imperfections of the neoclassical approach? • It does not show the processes (like wage bargaining) that affect labour market strongly in reality. • Wages and prices are treated as exogenously given while in reality they are very often set. • Equilibrium unemployment is voluntary.

  6. WHAT CAN WE DO ABOUT IT? WE CAN STUDY THE WAGE AND PRICE DETERMINANTS AND BUILD ANOTHER MODEL, THAT WOULD ALLOW US TO SEE MORE

  7. WHAT DOES THE PRICE DEPEND ON? Prices depend on costs. Costs depend on the nature of production process. If we assume that: Y=AN, where A is constant, say A = 1, then: Y=N, the cost of producing one more unit of output is the cost of employing one more worker, i.e. W. In the perfect competition the price of a unit of output = marginal cost (P = W). What if there is no perfect competition?

  8. Many goods markets are not competitive, therefore: the companies charge a price higher thanthe marginal cost: P = (1 + μ ) W. μ – is the markup of the price over the cost.

  9. WHAT DOES THE WAGE DEPEND ON? • BARGAINING POWER – wages are set by collective bargaining • EFFICIENCY WAGE – the companies can be willing to pay more than reservation wage is (above the wage that makes a worker indifferent to working or becoming unemployed) IN GENERAL: workers are usually paid above the reservation wage; wages do depend on labour market condition

  10. WHAT DOES THE WAGE DEPEND ON? • THE EXPECTED PRICE LEVEL (Pe) • THE UNEMPLOYMENT RATE (u) • THE OTHER FACTORS – like unemployment insurance (z) THEREFORE:

  11. ANOTHER APPROACH TOWARDS LABOUR MARKET • Wage setting relation: W = P f(u, z) if P = Pe • Price setting relation: P = (1+μ)W

  12. A NEW DEFINITION OF EQUILIBRIUM IN THE LABOUR MARKET REAL WAGE IMPLIED BY THE WAGE SETTING MUST BE EQUAL TO THE REAL WAGE IMPLIED BY THE PRICE SETTING EQUATION

  13. NATURAL UNEMPLOYMENT RATE… is the equilibrium unemployment rate NATURAL EMPLOYMENT and NATURAL OUTPUT LEVELS are strictly connected with natural unemployment rate:

  14. NATURAL EMPLOYMENT and NATURAL OUTPUT LEVELS are strictly connected with natural unemployment rate: Given the production function: Y = N:

  15. What can cause a shift of the WS and PS? • a change in z say an increase in unemployment benefits – that would have an impact on WS, it will shift upward (to the right) • a change in μ say a less stringent enforcement of existing antitrust legislation – this means an increase in markup – PS shifts down

  16. What are the consequences of WS and PS shifts on natural unemployment rate? • a change in z – natural unemployment rate increases • a change in μ– natural unemployment rate increases

  17. What is worth considering while talking about real labour market… The actual price level may turn out to be different from the expected price level: P≠ Pe Therefore, the unemployment rate need not be equal to the natural one!

  18. Projekt : „Odpowiedź na wyzwania gospodarki opartej na wiedzy: nowy program nauczania na WSHiP”. Projekt współfinansowany ze środków Unii Europejskiej w ramach Europejskiego Funduszu Społecznego.

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