Unemployment

1
Macroeconomic Analysis 2003
Theories of Unemployment Blanchard 6-8,13, Mankiw
6, MS 18
2
Four Theories of Unemployment
3
Unemployment in the Classical Model Minimum
wage and Labour Market Rigidity
B
C
A
LD(MPL)
L1
L2
0
L
4
Unemployment in the Classical Model A Numerical
Example Minimum wage, Labour Market Rigidity and
Involuntary unemployment
B
C
A
LD(MPL)
L1 485
L2605
0
L 488
U 120
5
(No Transcript)
6
A Numerical Example of the Natural Rate of
Unemployment
7
Real wage, Mark up and the Natural Rate of
Unemployment
0
Un 0.048
8
Efficiency wage theory
9
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
10
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
11
Frictional and structural unemployment
12
Frictional Unemployment Rate
13
Involuntary Unemployment in the Collective
Bargaining
Collective labour supply
Individual labour supply
A
B
Wu
Union voluntary and Individual Involuntary
unemployment
Wf
o
Le
L1
L2
14
Structural unemployment Labour Market Rigidity
15
Measures to reduce unemployment rate
16
References