Macroeconomics of Labor Markets

Transcription

1 Macroeconomics of Labor Markets Lecture 1: Overview Tuomas Pekkarinen Pekkarinen T Lecture / 19

2 Practicalities Workload Lectures 24h: Tue & Thu (G-107) Exercies: 4h Part of the lectures April 30 & May 17 Exceptions to the schedule No lectures on May 1, May 3, May 10 Lectures on Apr (Mon), May (Wed, G-109), May (Fri) Grading Exam: 80% Exercies: 20% Final exam: May 21, Pekkarinen T Lecture / 19

3 Practicalities Material: Lecture notes + problem sets (required) Main text: Cahuc, P., S. Carcillo, and A.Zylberberg: Labor Economics, The MIT Press, 2nd edition. Additional reading: Boeri, T. and J. van Ours: The Economics of Imperfect Labor Markets, Princeton University Press. Reading list (required reading indicated with *) Contact information: tuomas.pekkarinen@vatt.fi phone: Pekkarinen T Lecture / 19

4 Transatlantic differences in unemployment rates Pekkarinen T Lecture / 19

5 Transatlantic differences in unemployment rates Differences in labor market performance explained by differences in institutions Two problems with this line of argument 1 Where do these institutions come from? 2 Literature has a short memory 1960s: "Looking enviously at Europe to see how they do it" - employment protection as a potential explanation for low European unemployment 1980s: Institutional rigidities - employment protection as a culprit for high European unemployment Recent developments seem to suggest that unemployment is less volatile in Europe than in the U.S. Pekkarinen T Lecture / 19

6 Labor market response to 2008/09 recession Pekkarinen T Lecture / 19

7 Recent developments Pekkarinen T Lecture / 19

8 This course Analyze the functioning of imperfect labor markets Imperfections in the labor market often arise because information is not perfect Imperfect labor markets are characterized by the presence of many labor market institutions Institutions shape the behavior of individual workers and employers Pekkarinen T Lecture / 19

9 Labor market states Employed, L (OECD-ILO convention): People in working age who, during the reference week (or day), have worked for at least one hour in: Paid work or Self-employment Unemployed, U: People in working age who, during the reference week (or day) were: without paid or self-employed work willing to work looking for a job Inactive, O: People in working age who neither employed nor unemployed Pekkarinen T Lecture / 19

10 Normalization rules Labor force (LF): L + U Working age population (N): L + O + U Unemployment rate:u = U LF Employment rate: e = L N Participation rate: p = LF N Pekkarinen T Lecture / 19

11 Employment and unemployment rates, 2011 Pekkarinen T Lecture / 19

12 Participation and unemployment rates, 2011 Pekkarinen T Lecture / 19

13 Labor market states Employment and unemployment are negatively correlated Participation and unemployment are negatively correlated Certain countries face a relatively high unemployment because of insufficient job creation Pekkarinen T Lecture / 19

14 Competitive labor market Useful as a benchmark Workers and firms are perfectly informed about the wages and labor services offered by all the firms in the market There are no frictions or costs involved in the matching of workers Pekkarinen T Lecture / 19

15 Equilibrium in a competitive labor market Aggregate labor demand, L d (w) is always decreasing in w When hours are fixed, the aggregate labor supply is the fraction of workers with w r w, where w r is the reservation wage: The lowest level at which workers are willing to work Aggregate labor supply. L s (w) is increasing in wage Labor market equilibrium: L d (w) = L s (w) Can there be unemployment in this equilibrium? Pekkarinen T Lecture / 19

16 Equilibrium in a competitive labor market Pekkarinen T Lecture / 19

17 Why do labor market institutions exist? 1 Efficiency: A competitive labor market does not exist 2 Equity: As no lump-sum transfer is available, redistribution is distortionary 3 Policy failure: Heterogeneity and powerful minority interest groups Pekkarinen T Lecture / 19

18 Institutions and competitive equilibrium Pekkarinen T Lecture / 19

19 Outline (changes are possible!) 1 Introduction Boeri & van Ours chp 1 2 Job search Cahuc & Zyllenberg chp 5 3 Efficiency wages Cahuc & Zyllenberg chp 6 4 Unions Boeri & van Ours chp 3 5 Matching Cahuc & Zyllenberg chp 9 6 Minimum wages Boeri &van Ours chp 2; Cahuc & Zylberberg chp 12 7 Employment protection Boeri & van Ours chp 10 ; Cahuc & Zylberberg chp 12 8 Unemployment insurance Boeri & van Ours chp 11; Cahuc & Zylberberg chp 12 9 Active labor market policies Boeri & van Ours chp 12; Cahuc & Zylbergberg chp 12 Pekkarinen T Lecture / 19