Lecture 8 Labor Market Analysis(宏观经济学(南开大学,龚刚)

1、Macroeconomics,Lecture 8 Labor Market Analysis,I. Introduction,The objective to study how employment and thus unemployment is determined in the labor market.,II. The Natural Rate of Unemployment (NAIRU),The natural rate of unemployment It is the unemployment rate at which the economy is at equilibri

2、um (or at its general state). Sometimes, it is also called the NAIRU, standing for the Unemployment of Non-Accelerating Inflation Rate.,II. The Natural Rate of Unemployment (NAIRU),The natural rate of unemployment (continued) Associated with NAIRU is the natural level of employment and the natural l

3、evel of output (may also called the full-employment output). Associated with NAIRU, there is also a natural rate of growth.,II. The Natural Rate of Unemployment (NAIRU),Empiric NAIRU U.S. European China,II. The Natural Rate of Unemployment (NAIRU),The Importance of NAIRU. Generally, it is the object

4、ive a government should pursue. In other words, a government may not consider unemployment as being a problem if the unemployment rate is equal to or below its natural rate.,II. The Natural Rate of Unemployment (NAIRU),The determination of NAIRU Generally, it is believed to be determined by the inst

5、itutional factors such as the welfare policy of the government the structural of information transmission the industry concentration the power of labor union Others How about in China?,III. Neoclassical Theory of Employment,Employment supply determined by the households optimization decision regardi

6、ng the choice of consumption and leisure This decision problem gives rise to the following supply curve of employment.,III. Neoclassical Theory of Employment,Employment supply (continued),Ls,W/P,III. Neoclassical Theory of Employment,Demand for employment determined by firms production decision (opt

7、imization). Optimization condition: W=MPL（Ld，) from this optimization condition, we can derive demand curve for employment.,III. Neoclassical Theory of Employment,Demand for employment (continued) For example, if the production function is in the form of Cobb-Dauglas: The optimization condition can

8、be written as W=Y/Ld (A) Ld= Y/W,III. Neoclassical Theory of Employment,Demand for employment (continued),III. Neoclassical Theory of Employment,Demand for employment (continued) Implication: For any given scale of output, as long as the real wage is small enough, demand for employment will be large

9、r enough: This further indicates that the main reason of unemployment results from the wage rigid at “too high level”.,III. Neoclassical Theory of Employment,The equilibrium in the labor market,W/P,Ls, Ld,L*,III. Neoclassical Theory of Employment,The equilibrium in the labor market (continued) Impli

10、cation: As long as wage can be adjustable, unemployment should not be a problem. The main reason of unemployment is the wage rigidity at “too high level” of real wage rate.,IV. Keynesian Theory of Employment,Labor supply W/P,LS,L,IV. Keynesian Theory of Employment,The demand for labor in the short r

11、un In the short run, the production line (capital stock, K) is given. Therefore the production function could be written as Y = F(L),IV. Keynesian Theory of Employment,The demand for labor in the short run (continued) This indicates that the demand for employment is purely determined by the level of

12、 output. Specifically,IV. Keynesian Theory of Employment,The demand for labor in the short run (continued) Assume a linear production function Y=AL The demand for labor is given by Ld=Y/A Implication: wage has no impact,IV. Keynesian Theory of Employment,The demand for labor in the long run In the l

13、ong run, the firm is able to choose among different techniques (production lines). In this case, the production function could be written as Y = F(K, L),IV. Keynesian Theory of Employment,The demand for labor in the long run (continued),IV. Keynesian Theory of Employment,The demand for labor in the

14、long run (continued) Please note the difference from the usual smoothed production function Implication: wage may have impact on the demand for employment, though the effect is still limited (see the figure in the following page),IV. Keynesian Theory of Employment,The demand for labor in the long ru

15、n (continued),IV. Keynesian Theory of Employment,The demand for labor in a given period In a given period, some firms are in the short run. In this case, wage is not a factor to determine the demand for labor. Other firms however may be in the long run so that they have chances to choose production techniques (labor intensive or capital intensive). In this case, wage may be a factor in determining the demand for labor.,IV. Keynesian Theory of Employment,Equ