LABRST 3A03 Lecture Notes - Lecture 12: Phillips Curve, Adverse Selection, Moral Hazard
14 Dec 2017
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These costs increased the insiders bargaining power to raise wages, even in the presence of excess labour supply in the form of unemployed workers willing to work at lower wages. The phillips curve: represents negative relationship btwn aggregate money wage changes (ex/ wage inflation) and unemployment in the economy as a whole. Labour markets risks are significant because workers cannot diversify their human capital wealth. Due to moral hazard and adverse selection, the private sector doesn"t offer insurance for employment. Ui: provide workers with protection against the risk of income loss due to employment. Ui affects the incidence and duration of search by altering the costs and benefits of the job search. For the employed, the increase in benefit makes the job search more attractive, hence increasing the incidence of unemployment. For the unemployed, more generous ui lowers the costs of a job search, increasing the duration of job search and, hence increasing the unemployment rate.
