Question

Define the following:

Marginally attached worker

Discouraged worker, DW effect

            Cyclical, frictional, structural unemployment

Technological unemployment

            Labor force participation rate

            Theories of unemployment

Market interferences (min wage, union, etc)

            “Sticky wage” theory

Efficiency wage theory (labor discipline)

Aggregate demand

Phillips curve

Labor productivity

Wage-productivity gap

Skill-biased technical change

Answer 1

1. Marginally attached worker- A "marginally attached" worker is someone who:
-is currently not in the labor force
-wants full-time work
-has actively looked for a job sometime in the past 12 months

A "marginally attached" worker is not considered to be either employed or unemployed, so they are not included in the "official" unemployment number that is released by the US government every month.

2. Discouraged worker, DW effect- In the simplest terms, the discouraged worker effect means that someone has given up looking for a job because they believe there aren’t any jobs available. According to the Bureau of Labor Statistics, anyone who wants to work and is able to do so but hasn’t looked for a job in the past four weeks because they believe they cannot get a job for some reason, such as lack of demand for workers in their field or perceived discrimination, is a discouraged worker. In general, BLS statistics show that recent graduates, older workers and minorities are most likely to become discouraged workers.

3. Cyclical, frictional, structural unemployment- Over time, the economy experiences many ups and downs. That's what we call cyclical unemployment because it goes in cycles. Cyclical unemployment occurs because of these cycles. When the economy enters a recession, many of the jobs lost are considered cyclical unemployment.

Frictional unemployment occurs because of the normal turnover in the labor market and the time it takes for workers to find new jobs. Throughout the course of the year in the labor market, some workers change jobs. When they do, it takes time to match up potential employees with new employers. Even if there are enough workers to satisfy every job opening, it takes time for workers to learn about these new job opportunities, and for them to be considered, interviewed and hired.

Structural Unemployment- This occurs due to the absence of demand of a ccertain type of worker. This happens when there is a mismatch between the skills employers want and the skills workers have.

4. Technological unemployment- Technological unemployment is the loss of jobs caused by technological change. It is a key type of structural unemployment.

5. Labor force participation rate- Labour force participation rate is defined as the section of working population in the age group of 16-64 in the economy currently employed or seeking employment. People who are still undergoing studies, housewives and persons above the age of 64 are not reckoned in the labour force.

6. Theories of unemployment- The state of being without any work yet looking for work is called unemployment. Economists distinguish between various overlapping types of and theories of unemployment, including cyclical or Keynesian unemployment, frictional unemployment, structural unemployment and classical unemployment.

7. Market interferences (min wage, union, etc)-

Why Impose Minimum Wages?

• Reduce poverty
• Benefit disadvantaged workers

Benefits of Minimum Wages:

• Reduce tax burden – the need for public assistance (welfare, rent) is decreased
• Employment incentive – increases incentive = increase productivity = increase output
• Economic recovery
• Protects workers from abuse – helps mitigate the working conditions of those firms that take advantage and exploit workers

Trade Unions – organisation that protects the interest of workers

• Negotiate pay & working conditions
• Provides financial benefits
• Provide legal protection for members
• Pass legislation to improve the right for workers

8. “Sticky wage” theory- The sticky wage theory hypothesizes that pay of employees tends to have a slow response to the changes in the performance of a company or of the economy. According to the theory, when unemployment rises, the wages of those workers that remain employed tend to stay the same or grow at a slower rate than before rather than falling with the decrease in demand for labor. Specifically, wages are often said to be sticky-down, meaning that they can move up easily but move down only with difficulty.

9. Efficiency wage theory (labor discipline)- In labor economics, the efficiency wage hypothesis argues that wages, at least in some markets, form in a way that is not market-clearing. Specifically, it points to the incentive for managers to pay their employees more than the market-clearing wage in order to increase their productivity or efficiency, or reduce costs associated with turnover, in industries where the costs of replacing labor are high. This increased labor productivity and/or decreased costs pay for the higher wages.

10. Aggregate demand- In macroeconomics, Aggregate Demand (AD) or Domestic Final Demand (DFD) is the total demand for final goods and services in an economy at a given time. It is often called effective demand, though at other times this term is distinguished. This is the demand for the gross domestic product of a country. It specifies the amounts of goods and services that will be purchased at all possible price levels.

11. Phillipz curve- The Phillips curve is an economic concept developed by A. W. Phillips stating that inflation and unemployment have a stable and inverse relationship. The theory claims that with economic growth comes inflation, which in turn should lead to more jobs and less unemployment. However, the original concept has been somewhat disproven empirically due to the occurrence of stagflation in the 1970s, when there were high levels of both inflation and unemployment.

12. Labor productivity- Labor productivity measures the hourly output of a country's economy. Specifically, it charts the amount of real gross domestic product (GDP) produced by an hour of labor. Growth in labor productivity depends on three main factors: investment and saving in physical capital, new technology and human capital

13. Wage-productivity gap- Rising productivity provides the potential for substantial growth in the pay for the vast majority. However, this potential has been squandered in recent decades. The income, wages, and wealth generated over the last four decades have failed to “trickle down” to the vast majority largely because policy choices made on behalf of those with the most income, wealth, and power have exacerbated inequality. In essence, rising inequality has prevented potential pay growth from translating into actual pay growth for most workers. The result has been wage stagnation.

For future productivity gains to lead to robust wage growth and widely shared prosperity, we need to institute policies that reconnect pay and productivity and restore worker power, such as those in EPI’s First Day Fairness Agenda and the Agenda to Raise America’s Pay. Without such policies, efforts to spur economic growth or increase productivity (the largest factor driving growth) will fail to lift typical workers’ wages.

14. Skill-biased technical change- Skill-biased technical change is a shift in the production technology that favours skilled over unskilled labour by increasing its relative productivity and, therefore, its relative demand. Traditionally, technical change is viewed as factor-neutral. However, recent technological change has been skill-biased. Theories and data suggest that new information technologies are complementary with skilled labour, at least in their adoption phase. Whether new capital complements skilled or unskilled labour may be determined endogenously by innovators’ economic incentives shaped by relative prices, the size of the market, and institutions. The ‘factor bias’ attribute puts technological change at the center of the income-distribution debate.