Bài giảng Labour Market Economics - Chapter 18 Unemployment: Causes and Consequences

Chapter 18Unemployment: Causes and Consequences Created by: Erica Morrill, M.Ed Fanshawe CollegeChapter 18-1© 2002 McGraw-Hill Ryerson Ltd.Chapter FocusTypes of unemploymentWage rigidityVoluntary unemploymentImperfect informationUnemployment insurance2© 2002 McGraw-Hill Ryerson Ltd.Types of UnemploymentFrictionalStructuralDemand-DeficientSeasonalInvoluntary (associated with wage rigidity)3© 2002 McGraw-Hill Ryerson Ltd.Search UnemploymentImperfect information on both sides of the labour marketUndertaking a job search has costs and benefitsdetermine if it is worthwhile to initiate the job searchdetermine when to discontinue4© 2002 McGraw-Hill Ryerson Ltd.Optimal Job SearchMarginal expected benefit equals marginal expected costDiminishing returnsDuration - less likely a better offer will be received “Stopping Rule”- minimum acceptable wage5© 2002 McGraw-Hill Ryerson Ltd.Figure 18.1 Optimal Job SearchSearch durationPresent value of totalcosts and expected total benefitsSeSearch durationPresent value of MCand expected MBSeCBMCMB6© 2002 McGraw-Hill Ryerson Ltd.Figure 18.2 Wage Distributions Under Imperfect and Perfect InformationWage rateNumber of JobsWAWage rateNumber of JobsWeImperfect InformationFull Information7© 2002 McGraw-Hill Ryerson Ltd.Factors Determining Optimal SearchWage offers and duration of jobIncrease in benefits/decrease in costs Dissemination of informationVacancies/offersValue of leisure/# of other searchersSocial and labour market policiesAggregate economic conditions8© 2002 McGraw-Hill Ryerson Ltd.Implicit ContractsFirms and workers are already engaged in employment relationshipExplains responses to changes in production demand rigid wages layoffs/rehires Reflects risk-sharing9© 2002 McGraw-Hill Ryerson Ltd.Implicit Contract TheoryEmployees purchase income insurance from the employerThe employer can then deal with:moral hazardadverse selection10© 2002 McGraw-Hill Ryerson Ltd.Figure 18.3 a Implicit ContractsEmployment NReal WageWNoSNbDb= MPPN X PbDa= MPPN X PaWaWb=kWages and Employment with Market-Clearing11© 2002 McGraw-Hill Ryerson Ltd.Figure 18.3 b Implicit ContractsEmployment NReal WageWNoNbSDa= MPPN X PaWaDb= MPPN X PbNb*Wages and Employment with Implicit ContractskW*12© 2002 McGraw-Hill Ryerson Ltd.Efficiency Wages: Implications for UnemploymentEffect of wages on incentives and productivityAbove market wages are used to enhance productivityS-shaped function13© 2002 McGraw-Hill Ryerson Ltd.Efficiency Wages: Implications for UnemploymentUnemployment and rigid wages can coexistFirms refuse to cut wages because of the adverse work incentivesWage curveHigher unemployment leads to a greater penalty for shirking thus firms do not have to pay higher wages14© 2002 McGraw-Hill Ryerson Ltd.Insider-Outsider TheoryWage setting is determined by bargaining Costly for the firm to replace workersWorkers have bargaining power to raise wages even with excess labour supplyExplains the existence of high unemployment and real-wage growth15© 2002 McGraw-Hill Ryerson Ltd.Sectoral Shifts and UnemploymentSectors of the economy are growing at different rates Unemployment occurs as labour reallocates from the slower sectors to the fast growing sectors16© 2002 McGraw-Hill Ryerson Ltd.Rationale for Unemployment InsuranceMoral hazard and adverse selection reduce the profitability of selling insurancePrivate sector may not provide the socially optimal amount of unemployment insuranceTherefore, governments introduced unemployment insurance as part of social policy17© 2002 McGraw-Hill Ryerson Ltd.Effects of Unemployment InsuranceIncident and duration of employmentLayoffsEmployment instabilityLabour supplyInterregional mobility18© 2002 McGraw-Hill Ryerson Ltd.Incident and Duration of EmploymentLower cost of job search increasing the duration of the unemployed searchIneligible workers are motivated to accept employment quickly to then qualify for benefits19© 2002 McGraw-Hill Ryerson Ltd.LayoffsUI lowers the cost of adjusting to fluctuations in demandlayoffs relative to other methodsWithout UI employers who rely on layoffs would have to pay a compensating wage to attract employees20© 2002 McGraw-Hill Ryerson Ltd.Employment InstabilityUI may encourage the use of layoffs as opposed to reductions in hours of workThis bias can be offset by:experience-rated UI programsUI assisted work sharing programs21© 2002 McGraw-Hill Ryerson Ltd.Labour SupplyUI impacts labour force participationHigher UI causes some to reduce weeks worked to the minimum required others to increase weeks worked in order to qualifyLabour force participation rises because no one leaves but new workers enterMeasure unemployment increases22© 2002 McGraw-Hill Ryerson Ltd.Interregional MobilityRegional extended benefits discourage interregional mobility by providing benefits for longer periods in regions with high unemployment23© 2002 McGraw-Hill Ryerson Ltd.End of Chapter Eighteen24© 2002 McGraw-Hill Ryerson Ltd.