Unit 9 The economy summary

Unit 9 The labour market: wages, profits and
unemployment
9.1 The wage-setting curve, the price-setting curve and the labour market

The nominal wage is the actual amount received by working.
The real wage is the nominal wage with changes in prices taken account for.
Employment rents are needed to keep people motivated.

1. What wage, price and hires they will set.
 First the lowest wage is determined by the human recourse department.
 Then the price is set by marketing.
 Then the production department calculation the people needed to produce
output.

9.2 Measuring the economy: employment and unemployment

You are unemployed when you want/are able to work but can’t find a job.
- Population
 Population working age 15-64
o Out of labour
o Labour force
 Employed
 Unemployed
The participation rate = labour force / working age.
The unemployment rate = unemployed / labour force.
The employment rate = employed / population of working age.

9.3 The wage-setting curve: employment and real wages

By 12% the reservation wage is low, so relatively
low effort by the employee.
By 5% the reservation wage is high, is relative low
effort is being used.

The lower the unemployment rate, the higher the
wages.

9.4 The firm’s hiring decision

The labour productivity = output / total hours.
Human recourses choose the nominal wage, w.
Marketing chooses the price, p.
Production chooses the employment, n.

Isoprofit curve = marginal rate of substitution = (p - W)/q.