Econ 203 Chapter 9

Benefits of efficiency wages

1. Worker health increases 2. Worker turnover decreases 3. Worker effort increases 4. Worker quality increases

A person is considered employed if...

they spent some of the previous week working at a paid job

Explain how worker effort increases with efficiency wages

Workers will have greater incentive to work hard and keep their job with a higher wage

What are two reasons unemployment may be measured incorrectly?

1. Some of the unemployed may not be trying hard to find a job 2. Discouraged workers - people who have looked for jobs and given up

What is the formula for labour force?

= # of employed + # of unemployed

What is the formula for unemployment rate?

= (# of unemployed / labour force) x 100

What is the formula for the labour force participation rate?

= (labour force / adult population) x 100

Unemployment varies for different regions. What region of Canada is consistently higher than the rest of the country?

Atlantic Canada

Who can be described as not in the labour force?

Full-time student, homemaker, retiree

Why are unions good for the economy?

Helps firms respond efficiently to workers' concerns. Protects workers from being at the mercy of the firm owners.

Explain how worker quality increases with efficiency wages

Higher wages attract a better pool of applicants

What is the difference in unemployment between job search and minimum wage laws?

Job search - actively searching for jobs that suit that taste and skills Minimum wage laws - workers are waiting for jobs to open up

Explain how worker turnover decreases with efficiency wages

Less workers will want to quit if their wage is higher than what other firms are paying. Hiring and training new worker is costly to a business, so it pays to keep existing workers at a higher wage.

Explain how worker health improves with efficiency wages

More money to spend on a healthy diet, which in turn increases productivity. More prevalent in poorer countries (Canada's minimum wage is already high enough to support healthy diets)

How long are the unemployed without work?

Most spells of unemployment are short, and most unemployment observed at any given time is long term. Averages hide outliers, however.

Is unemployment measured correctly?

People move into and out of the labour force so often that statistics on unemployment are hard to measure

Who does minimum wage laws affect most?

Teenagers (least skilled, least experienced in work force)

What is misleading when comparing Canada and the United States' unemployment rates?

United States has a labour force of people 16+, while Canada's labour force is 15+

Why are there always some people unemployed?

Wages do not always adjust to balance the quantity of labour demanded and the quantity of labour supplied.

Why are unions bad for the economy?

When wages are raised, quantity of labour supplied is greater than quantity of labour demanded. Those who remain employed are better off, but those who become unemployed as a result of the higher wage are worse off.

Define: Discouraged worker

Workers who have looked for jobs for a long time, given up hope, and stopped looking

What is the purpose of EI?

a gov't program that partially protects workers' incomes when they become unemployed

Define: efficiency wages

above-equilibrium wages paid by firms in order to increase worker productivity

What is a recent reform to EI?

allocation of funds away from the payment of benefits to unemployed people and toward the funding of training programs

Define: sectoral shifts

changes in the composition of demand among industries or regions

Define: structural unemployment

number of jobs available in some labour markets is insufficient to provide a job for everyone who wants one

Define: job search

process by which workers find appropriate jobs given their tastes and skills

What happens when a minimum wage law is introduced that is above equilibrium?

raises the quantity of labour supplied and reduces the quantity of labour demanded

Define: natural rate of unemployment

the amount of unemployment that the economy normally experiences

Define: Cyclical unemployment

the deviation of unemployment from its natural rate

Define: strike

the organized withdrawal of labour from a firm by a union

Define: collective bargaining

the process by which unions and firms agree on the terms of employment

A person is considered unemployed if...

they are on temporary layoff or looking for a job

Define: frictional unemployment

unemployment that results because it takes time for workers to search fro the jobs that best suit their tastes and skills