ECO 2114 Chapter Notes - Chapter 2: Discouraged Worker, Underemployment, Microeconomics

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Labour supply is always analysed in a sequential procedure: first we analyze whether the individual participates or not in the labour force. If he/she does participate, then we determine the length of time that he/she works. Both of these questions can be analyzed within the same framework. The unemployment rate (ur) is the faction of the labour force that is unemployed (u) and actively seeking employment ( ur = u / lf) The textbook contains applications of the theory of labour supply to comparisons of lfpr across countries and across genders. This is the theoretical part of the chapter, which relies heavily on graphical analysis. This model of worker behaviour is based on a premise that he/she does have some degree of control over the employment situation (i. e. the length of the working time), and therefore has some margin to make voluntary choices. The worker has preferences among two goods which give him/her positive marginal utility, income and leisure.