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Macroeconomic Analysis 2003. Theories of Unemployment Blanchard 6-8,13, Mankiw 6, M&S 18. Four Theories of Unemployment. Unemployment in the Classical Model: Minimum wage and Labour Market Rigidity. B. C. A. LD(MPL). 0. L1. L2. L.

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Presentation Transcript
slide1

Macroeconomic Analysis 2003

Theories of Unemployment

Blanchard 6-8,13, Mankiw 6, M&S 18

Lecture 20

slide3

Unemployment in the Classical Model:

Minimum wage and Labour Market Rigidity

B

C

A

LD(MPL)

0

L1

L2

L

Lecture 20

slide4

Unemployment in the Classical Model: A Numerical Example

Minimum wage, Labour Market Rigidity and Involuntary unemployment

B

C

A

LD(MPL)

0

L1 = 485

L2=605

L = 488

U = 120

Lecture 20

slide9

Firms Demand for labour

Unions wage employment preference

Firms Labour demand

U(w,E)

Collective

Labour

supply

Wage

rate

Wage

rate

MPL

MPL

Employment

Employment

Lecture 20

slide10

Insider-Outsider Model of Unemployment with

Wage rates and Employment in the Union and Non-union Sectors

LD in non union sector

LD in union sector

U(w,E)

Wage rate

in the

non-union

Sector

wu

Wage rate

in the

Union

Sector

wnu

0

Non-union, E

Union, E

u

Lecture 20

slide13

Involuntary Unemployment in the Collective Bargaining

Collective labour supply

Individual labour

supply

A

B

Wu

Union voluntary

and Individual

Involuntary

unemployment

Wf

o

L2

Le

L1

Lecture 20

slide16

References

Lecture 20