tailieunhanh - Lecture Macroeconomics: Lecture 9 - Prof. Dr.Qaisar Abbas

Lecture 9 - Unemployment. The main contents of the chapter consist of the following: Natural rate of unemployment, why is there unemployment? job search, wage rigidity. | Review of the previous lecture 1. Key results from Solow model with tech progress steady state growth rate of income per person depends solely on the exogenous rate of tech progress the . has much less capital than the Golden Rule steady state 2. Ways to increase the saving rate increase public saving (reduce budget deficit) tax incentives for private saving Review of the previous lecture 3. Productivity slowdown & “new economy” Early 1970s: productivity growth fell in the . and other countries. Mid 1990s: productivity growth increased, probably because of advances in . 4. Empirical studies Solow model explains balanced growth, conditional convergence Cross-country variation in living standards due to differences in cap. accumulation and in production efficiency Lecture 9 Unemployment Instructor: Abbas Lecture Outline Natural rate of unemployment Why is there unemployment? Job search Wage rigidity Natural rate of unemployment Natural rate of . | Review of the previous lecture 1. Key results from Solow model with tech progress steady state growth rate of income per person depends solely on the exogenous rate of tech progress the . has much less capital than the Golden Rule steady state 2. Ways to increase the saving rate increase public saving (reduce budget deficit) tax incentives for private saving Review of the previous lecture 3. Productivity slowdown & “new economy” Early 1970s: productivity growth fell in the . and other countries. Mid 1990s: productivity growth increased, probably because of advances in . 4. Empirical studies Solow model explains balanced growth, conditional convergence Cross-country variation in living standards due to differences in cap. accumulation and in production efficiency Lecture 9 Unemployment Instructor: Abbas Lecture Outline Natural rate of unemployment Why is there unemployment? Job search Wage rigidity Natural rate of unemployment Natural rate of unemployment the average rate of unemployment around which the economy fluctuates. In a recession, the actual unemployment rate rises above the natural rate. In a boom, the actual unemployment rate falls below the natural rate. A first model of the natural rate Notation: L = # of workers in labor force E = # of employed workers U = # of unemployed U/L = unemployment rate Assumptions 1. L is exogenously fixed. 2. During any given month, s = fraction of employed workers that become separated from their jobs, f = fraction of unemployed workers that find jobs. Natural rate of unemployment s = rate of job separations f = rate of job finding (both exogenous) The transitions between employment and unemployment The steady state condition: the labor market is in steady state, or long-run equilibrium, if the unemployment rate is constant. The steady-state condition is: Solving for the “equilibrium” U rate f U = s E = s (L –U ) = s L – s U Solve for U/L: (f + s) U = s L so, Natural rate of .