MGEB06H3 Lecture Notes - Lecture 6: Price Floor, Working Poor, Efficiency Wage

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To show that unemployment is the natural consequence of dynamics in the labour market. Both job finding and job separation rates determine the nru. To discuss how the process of job search leads to frictional unemployment and how government policies affect frictional unemployment. To discuss how wage rigidity leads to structural unemployment and the causes of wage rigidity. Note: in this chapter, we examine the causes of unemployment rate in the long run the natural rate of unemployment. The natural rate of unemployment (nru) refers to the unemployment rate to which the economy tends to return to in the long run. 6-1 job loss, job finding, and the natural rate of unemployment. This section aims at developing a model that explains the dynamics in the labour market. S = job separation rate, fraction of employed workers who lose their jobs each month. F = job finding rate, fraction of unemployed workers who find new jobs each month.

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