Actual Issues on Labour Market Economics

1
Actual Issues on Labour Market Economics

• Some Considerations

2
Important and extreme Labor Market Theories

• Neoclassical Theory
• Keynesian Theory

3
Neoclassical Labour Market Theory Basics

• Microeconomic Decisions are relevant only
• Households decide on their supply of Hours of
  Work
• Firms decide on their demand for Working Hours
• The Market Clearing Wage Mechanism decides on the
  level of wages
• With a given level of market clearing wages the
  level of working number of hours is determined,
  too.
• That is an EQUILIBRIUM, nobody wants to change

4
Neoclassical Labour Market Theory Basics

• At EQUILIBRIUM households are satisfied since
  their supply is employed
• At EQUILIBRIUM firms are satisfied since their
  demand for labour is provided
• There is no unwanted unemployment
• There are no undesired vacancies

5
Neoclassical Labour Market Theory Equilibrium
L
L
w/p
w/p
6
Neoclassical Labour Market Theory Hierarchy of
Markets

• Neoclassical Theory All Markets are EQUAL
• Prices and wages clear all markets
• You get a simultaneous EQUILIBRIUM

7
Keynesian Labour Market Theory Basics

• Macroeconomic Developments are relevant
• Households have a more or less constant supply
  of Hours of Work
• Firms decide on their demand for Working Hours
  
• Bargaining Power decides on the level of wages
• Output Sales and Wages determine number of workin
  hours
• That is an EQUILIBRIUM with potentially
  unemployment

8
Neoclassical Labour Market Theory Basics

• At EQUILIBRIUM neither households nor firms are
  satisfied since their supply is employed
• There is unwanted unemployment
• There are undesired vacancies

9
Keynesian Labor Market Theories Hierarchy of
Markets

• First there are equilibria on the goods and money
  markets.
• Then follows the labor market.
• Therefore labor market developments are analyzed
  under the assumption of a given goods and money
  market equilibrium.
• There are interdependencies

10
Keynesian Labor Market Theories Wages
Aggregate Demand Curve Small Economy
Real Wage
A
W0PS
Wage Setting Curve wws
Unemployment
U0
11
Keynesian Labor Market Theories Employment
L0N(Q0)
L1N(Q1)
S LiA
Maximum Real Wage
wr,0max
wr,0
Wage Setting Curve
L0
L1
Lmax
L
12
Keynesian Labor Market Theories Equilibrium
IS
IS1
LN (X0)
i
LS
LM
LM1
UN
LU
Q
Q0
L
L
Q(L)
L
13
Keynesian Results

• Goods and money markets determine the outcome on
  the labor market.
• This may be a disequilibrium people may want to
  change
• This can only be done by goods or money market
  stimulations
• Wage restraint does not help