labor flow - transition within labor force, into/out of labor force
- flow into employment from: unemployment, out of labor force
- flow out of employment to: unemployment, out of labor force
- flow into unemployment from: layoffs, out of labor force (but still no job)
- flow out of unemployment to: employment, out of labor force
- can also move within employment from 1 job to another
- 3/4 of job separations for better opportunities
- nonemployment rate - like unemployment rate, but also includes discouraged workers
effects of unemployment rate - affects actions of both employers/employees
- decrease in labor demand >> firms can hire fewer workers or lay off
- firms prefer to just hire fewer workers >> reduces chances that unemployed worker will get a job
- fewer job openings >> higher unemployment rate, more applicants
- duration of unemployment (usually around 3 months) increased
- more layoffs >> increases unemployment
- higher chance that employed workers will lose their jobs
wage determination - higher skill >> more bargaining power
- collective bargaining - between firms/unions, usually in manufacturing industry
- otherwise between employee and prospective employee
- workers paid more than reservation wage (amount for which workers are indifferent to working or not working)
- bargaining power - determined by how much it costs firm to replace worker, how easily worker can find another job
- lower unemployment >> easier for workers to find new jobs, harder for firms to find new workers >> more bargaining power >> higher wages
- efficiency wages - proposed relation between higher wages and increased production
- higher wages >> gives workers incentive to stay w/ firm (especially important where work requires training)
- increases workers' loss if they get fired
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