ECON 1102 Lecture Notes - Lecture 18: Potential Output, Shortage, Unemployment Benefits
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Econ 1102 - lecture #18 - chapter 30 continued. Demand is downward sloping, and supply is upward sloping. Two major problems with these theories: empirical observation is not consistent with the predicted fluctuations in real wages. People who are not working are assumed to have voluntarily withdrawn from he labour market. Yet for all those receiving employment insurance who are actively looking for a job, hard to say unemployment is voluntary. At that wage level, more is demanded, but less labour is supplied (excess demand for labour). Long-term employment relationships: over the business cycle, many workers and their employers have long-term relationships in which the wages and conditions of work are determined for extended periods of time, often for one or more years. It would give the system more flexibility - it"s easier to adjust. Economic climate versus economic weather: variations in real wages usually occur gradually and are determined by the long-term eco(cid:374)o(cid:373)ic (cid:862)cli(cid:373)ate(cid:863).