Dynamics of unemployment and real wages, Managerial Economics

Dynamics  of Unemployment and  Real  Wages through Productivity Shocks 

The model  that you  are  studying here  is  in  the  tradition of  the  real  business cycle theory that you have studied in earlier units. As you know,  this kind of a model works out the implications of  shocks to productivity. The model has  the following implications  to employment  and wages. 

1)  A temporary qverse shock to productivity decreases hiring (as it decreases the  marginal productivity  of  labour  and  hence  the  benefit  of  hiring  the marginal unit of labour) and  increases unemployment. As  the shock is,  by definition,  temporary, productivity  and  the  net marginal value  of  labour return  to  their original  level, but,  it can be  shown that  the unemployment rate only slowly returns to normal through increased hiring. Moreover, since it  is  cheaper for  the  firm  to  hire  when  there  are  more unemployed,  a productivity shock has greater effect on unemployment when it is high than when  it  is  low.  This is,  of  course,  implicit  in  the  non-linearity  of  the equation explaining u*, the natural rate of unemployment. 

2)  The model explains why fluctuations  in employment may be associated with smaller fluctuations in real wages. This will happen if 6,  the share obtained by workers, is constant, as is assumed  in the model, and small. Real wages vary  in the model with productivity and high rates of hiring are Associated with high real wages. The model thus explains the observed empirical fact of  a  pro-cyclical increase  in  real wages, but  to  a smaller extent  than  the increase  in employment, if the share obtained by workers is small in relation to that obtained by the hiring firms.  

Posted Date: 10/26/2012 6:28:27 AM | Location : United States







Related Discussions:- Dynamics of unemployment and real wages, Assignment Help, Ask Question on Dynamics of unemployment and real wages, Get Answer, Expert's Help, Dynamics of unemployment and real wages Discussions

Write discussion on Dynamics of unemployment and real wages
Your posts are moderated
Related Questions
Explain how managerial economics is useful for decision making

Question 1: Explain the central theme of Scientific Management. Do you think that the scientific management enhances productivity in the organization? Give your arguments.

Limitation The degree or success with which the central bank can use its bank rate policy to control the total credit in the economy depends upon the interest elasticity of in

wHAT IS THE SIGNIFICANCE OF EXPECTATION ELASTICITY ?

how much output should a firm produce? 80$ per unit C(Q)=40+8Q+2Qsquared

Question 1. Discuss the practical application of Price elasticity and Income elasticity of demand Question 2. Discuss profit maximizing model in detail Question 3. Descr

MONOPOLISTIC PRACTICES The following practices may be said to characterize monopolies. Exclusive dealing to supply and collective boycott Producers agree to supply onl

A  monopolist has two types of customers. There are 100 of Type A, who will every pay up to $10 for a single unit of the good, and 50 of Type B, who will every pay up to $8. Neithe

Suppose that Betsy's utility function is given by the equation U=Y0.3 where Y is calculated in thousands of dollars. Betsy's present job pays her $20,000 (Y=20) per year and she ca