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ECON 1B03 (523)
Lecture

# Oct 16 note - The following statement would be viewed as good news in Canada, but bad news in the U.S, the unemployment rate is 6.5%. What's going on here.docx

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School
Department
Economics
Course
ECON 1B03
Professor
Hannah Holmes
Semester
Fall

Description
The following statement would be viewed as good news in Canada, but bad news in the US: “the unemployment rate is 6.5%” what’s going on here? (Ch 9) 16/10/2008 Natural rate of unemployment – the unemployment that the economy tends to return to the natural rate of unemployment rate In Canada, the natural rate of unemployment rate is higher than 6.5% Natural rate is made up of the frictional unemployment and the structural unemployment and cyclical unemployment causes fluctuation around the natural rate of unemployment Why is the natural rate of unemployment different in each country? Why would the quantity of labour supply is greater than the quantity of labour demanded 1) The minimum wage: economic theory Ls W 8.75 minimum wages Ld L Unemployed - Assume that the minimum wage is higher than the equilibrium price - Aminimum wage is what we called a price floor, it’s a legally mandated price - If the price of the minimum wage is higher than the equilibrium, we call the price is binding, it means that the existent of the minimum wage will causes changes in the market. - The difference in the quantity supplied and the quantity demanded is the # of people unemployed, this is caused by the minimum wage - if the minimum wage increase to \$10, the # of unemployed will increase Minimum wage: real world Many economists do not think that’s what happens The labour demanded is vertical 1 The following statement would be viewed as good news in Canada, but bad news in the US: “the unemployment rate is 6.5%” what’s going on here? (Ch 9) 16/10/2008 W Ld Ls 10 minimum wages 8.75 minimum wages L Why is it more realistic? The quantity that firms want to hire does not response to the wage because they want to hire that many people regardless what the wage is. When the minimum wage increase, there is an increase in unemployment but the difference between these two graphs is that with the real world, the change in unemployment is less. This is more realistic because minimum wage only affects people working in the low skill labour market. The argument is even if the minimum wage increase, the firm can only cut on so much because a in order to maintain the level of production, the firm have to have this many people working. So in conclusion a raise in minimum wage will only increase the cost of producing, the number of people employed won’t change but more people would want to work at \$10 than \$8.75. Minimum wage: market for lawyers The line is way higher than the minimum wage so a change in the minimum wage does not affect the market for lawyers. The minimum wage is not binding meaning that the existent of minimum wage does not cause unemployment for lawyers and high paying
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