Labour Markets & Unemployment

A person is unemployed when they are not in paid employment or self-employemnt, available and actively seeking work.

Labour force/Population of working age

Unemployed/Labour force

Employed/Population of working age

Nominal wage divded by the price level of the bundle of consumer goods purchased

The real wage necessary at each level of economy-wide employment to provide workers with incentives to work hard and well

Lowering the unemployment rate will shift worker's best response curve to the right, reservation wage increases and wage increase. This results in a upward-sloping wage-setting curve

Profit/Output + Nominal wage/Output

Real profit + real wage

Once firms set their prices, this determines the level of output and markup in the economy which pins fows the real wage

The real wage paid when firms choose their profit-maximising price. It depends on competition (which determines markup) and labour productivity (which determines real wage for given markup)

The Nash equilibrium is where the wage- and price-setting curves intersect

Excess supply in the labour market

Sum of the demand for all of the goods and services produced in the economy

The increase in unemployment caused by the fall in aggregate demand

Firms could lower wages without lowering workers' effort. Lower wages allow them to cut their prices which stimulates demand and leads to an increase in outpu. Firms the hire more workers to produce mpore so unemployment falls back to the Nash equilibrium.

Workers resist cuts to their nominal wage (lower morale and strikes), lower wages means people spend less so aggregate demand falls further. Falling prices across the economy may lead consumers to postpone their purchases in hope that they cointinue to fall

An increase in labour supply shifts the wage-setting curve downward. Greater pool of unemployed, Higher employment rents and lower cost of effort

An organisation consisting predominantly of employees. Its main activities include the negotiation of rates of pay and conditions of employment for its members

Indicates the wage that the union-employer bargaining process will produces for every level of employment

Education and training increases productivity. Wage subsidy lowers production costs and prices

Lower unemployment benefit lowers the reservation wage

Immigration policies increases labour supply. Childcare provision increases female labour participation