BBG 101 Lecture Notes - Lecture 6: Frictional Unemployment, Market Clearing, Efficiency Wage
1 Nov 2020
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Causes by search times needed for workers to find jobs and firms to find jobs. Workers have the right skills and right locations, they just haven"t found or chosen jobs: structural unemployment technological progresses and large demand swings cause changes in the structure of the economy. It exists because of mismatches of skills and location. The unemployment do not have the right skills or right location for the jobs available: demand and deficient unemployment caused by deficiency of aggregated demand relative to the full employment level. Economy is not generating enough jobs to employ all who want to work because firms are not hiring due to insufficient demand for the goods and services. Unemployed are willing to work but no jobs are available: wage induced unemployment caused by workers getting wages above the market clearing wage. Unions exercise market power to increase wages above market-clearing level. Higher wage reduces demand for labour below that required for full employment.
