Summary EKN244 - Labour Markets

The labour market : wages,
profits and unemployment

, from Economy 1 O
.




Context for this unit




* This unit introduces the labour market
-
where
wages ,
profits and unemployment rates are determined

#


Unlike simple supply-demand markets ,
wages are set
through ;


·
firm's need to motivate workers


2 firm's
pricing and profit decisions




* This unit two units we've studied far
brings together so ;




& firms produce differenciated products (unit 1)
Price-setting
* The model conflict of
principal-agent can explain the interest between the employer

and the worker's efforts and contracts not
the employee over , why are
enough
to resolve this . (unit 6)


* What we will do this unit :




1) Model
price-setting and behaviours of firms determine
wage-setting which


economy-wide unemployment rate and real
wage
2) Explain why unemployment exists even in equilibrium

3) snow how the
government can affect
wages
and unemployment by
it's policies
4) Analyse the role of labour unions

, The labour market



The labour market
brings together 2 earlier themes :



·
the firm and its employees (unit 6)

·
the firm and its customers (unit)



firm and employees To motivate workers firms worker's
,
set
wages high enough that
being unemployed
earn economic rent (job better


If alternative jobs are plentiful (low unemployment) ,
firms need

motivate/elicit effort
higher wages to




* called
wage-setting
* done by HR dept .




firm and customers price firms face trade off between
When
choosing a
,
a



& (due to demand curve
selling more
setting higher price

Given cost of firms choose price that sets
the
wages ,
a a




profit-maximising markup over unit costs


More competition = lower markup



called
*
price-setting
* done dept
by Marketing .




Economy wide Each firm chooses its price and employment
:
wage ,




firms determines and
Aggregating across the real
wage employment
in the whole
economy