10.1 Introduction: Theories of Unemployment
Many individuals appear to be unemployed.
The possibility of unemployment is a central subject of macroeconomics.
two basic issues.
the determinants of average unemployment over extended periods.
whether this unemployment represents a genuine failure of markets
causes and consequences are
The second issue concerns the cyclical behavior of the labor market.
shifts in labor demand appear to lead to large movements in employment and only small movements in the real wage
This chapter considers various ways in which the labor market may depart from a competitive
If there is unemployment in a Walrasian labor market, unemployed workers immediately bid the wage down until supply and demand are in balance.
consider an unemployed worker who offers to work for a firm for slightly less than the
firm is currently paying,
There are at least four possible responses
the firm can say that it does not want to reduce wages. Theories in which there is a cost as well as a benefit to the firm of paying lower wages are known as efficiency-wage theories.
the idea that higher wages may raise the productivity, or efficiency, of labor.)
it wishes to cut wages, but that an explicit or implicit agreement with its workers prevents
it from doing so.1 Theories in which bargaining and contracts affect the macroeconomics of the labor market are known as contracting models
the unemployed worker’s offer is to say that it does not accept the premise that the unemployed worker is identical to the firm’s current employees.
That is, heterogeneity among workers and jobs may be an essential feature of the labor market