We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Nobody downloaded yet

The Wage setting model of unemployment - Essay Example

Comments (0)
Summary
The Wage setting model of unemployment In this model, the goal of the wage-setters is to set the actual wage, given the unemployment level in the economy. The major assumption in this theory goes that wage setting is a much disaggregated act…
Download full paper
GRAB THE BEST PAPER
The Wage setting model of unemployment
Read TextPreview

Extract of sample
The Wage setting model of unemployment

Download file to see previous pages... Wage setters cannot factually set the actual wage. In fact, the real wage weighs the purchasing power of those earning wages and is thus equivalent to the cash wage divided by the level of consumer prices. Wage setters can therefore set the money in their firm or in their economic sector. These wage setters set cash wage as per their expectation of the price level of consumers. Consequently, they set an expected actual wage in relation to the level of unemployment. Using the wage setting model of unemployment to explain and discuss the following statements: a). Competition between the employed and the unemployed is critical in Maintaining a low natural rate of unemployment A natural rate of employment refers to the unemployment rate when the labour market is at its equilibrium. NRU can also be the difference between people who would wish to get a job at the present wage rate and the people who are willing and at the same time, able to take a job. It is caused by supply side factors as opposed to demand side factors. In connection to the wage setting model, it can be argued that, competition between the employed and the unemployed is critical in maintain a low natural rate of unemployment because it enables the wage negotiations to be more decentralized. This takes place at a smaller economic unit level. The lower the specified unit, the more competition it faces, which makes the labour demand more flexible (Blanchard & Katz 1970). To maintain law natural rate of unemployment, there must be competition of the unemployed and unemployed so that there can be at one end, an individual’s level and infinite elasticity on the other. Since an employed person fears the risk of being replaced with another person who is ready and willing to take up the job, thus lowering the equilibrium wage. If the centralization level of wage bargains goes up and if trade unions are inclusive, then an economy that is highly unionized can attain low unemployment rates. Nations with very decentralized wage-setting obtain a low rate of employment because of competition in the labour market. In an economy without competition the employed and unemployed, there might be a two-tier society, having a class of unstable workers who may be forced to wonder between poor-waged jobs and unemployment. As far as this is concerned, the bottle tends to be half full/half empty. While the labour market is actually dual when one looks solely at the jobs, one should also look at the unemployed individuals. At one extreme, this may imply that only specific people would always hold specific jobs, but on the other hand, the unemployed may have better skills and ready to work but with no opportunity to do so. Competition is therefore important in maintaining low natural rates of unemployment because it gives firms an opportunity to effectively screen and pick employees, an option that is vital in determining the amount of wages to be allocated in accordance to the work experience and skills, thus ensuring that there is a balance between the employed and unemployed (Burda & Wyplosz, 2013). It is also important to note that competition is crucial for the reason that, the employed personnel working on contract terms may wield pressure on the benefit systems of the unemployed, in case they are eligible to do so. The increase in job turnover may adversely raise the number of qualified claimants and place wage pressure on the unemployment benefit administration. ...Download file to see next pagesRead More
Comments (0)
Click to create a comment or rate a document
CHECK THESE SAMPLES - THEY ALSO FIT YOUR TOPIC
New Keynesian Model
The traditional Keynesian theory emphasized on the existence of wages that are sticky. While New Keynesian theorists went further to explain clearly the source of nominal rigidity in the economy. the NKPC implies that inflation depends on real marginal cost, and not directly on either the gap between actual output and potential output or the deviation of the current unemployment rate from the natural rate of unemployment, as is typical in traditional Phillips curves (Walsh 2003).
4 Pages(1000 words)Essay
Social Consequences Of Long Term Unemployment
Social consequences of long term unemployment Employment whether self or formal, is very important in the general wellbeing of an individual. This affects both the social life as well as the country’s economic stability. An individual is able to access quality services and able to afford the best life and luxuries that accompany high purchasing power.
5 Pages(1250 words)Essay
Unemployment In UK and Effect of a Wage Increase
For instance, in analysing the issue of whether an increase in the minimum hourly wage causes unemployment, Baumol and Blinder (2009, p. 115) produced a model that we reflect in this work as Figure 1. Figure 1. Anticipated impact of an increase in hourly minimum wage Source: Baumol and Blinder 2009, p.
5 Pages(1250 words)Essay
Economic Effects of Minimum Wage Fixation
This essay primarily focuses on theoretic analysis of monopsony model of labor, standard competitive model of labor and the efficiency wage model of labor with an aim of establishing the quantitative impact of fixation of minimum wage on the unemployment. Different types of markets demonstrate different results, when it comes to that relationship
4 Pages(1000 words)Essay
Macroeconomics Keynesian and Classical Model
Aggregate supply curve is horizontal indicating that firms will supply whatever amount of goods is demanded at the existing price level. Aggregate demand curve would show the level of output at the given price level at which goods and money market are in equilibrium.
10 Pages(2500 words)Essay
The effects of raising the minimum wage
Each company sets its own minimum wage taken into considerations country’s laws and regulations. Almost all the countries in the world have similar kind of minimum wage laws and legislation.
21 Pages(5250 words)Essay
Unemployment amongst the young and unskilled
In this essay we tried to explain all these conditions with reference to UK labour market. We focused on UK because recent policy and legislation changes regarding minimum wages converted this country into a more flexible and effective labour market.Introduction: Wages are one of the most important aspects of labour economics.
15 Pages(3750 words)Essay
Unemployment
Unemployment has a negative effect on the economy and the quality of life of its citizens. Since unemployed individuals do not have a source of income, they cannot meet
2 Pages(500 words)Essay
Minimum or living wage on unemployment
Some of the adjustments that companies make include reducing hiring, reducing the employees working hours, reducing the benefits accrued to workers such as a free lunch, and charging higher prices on some of the commodities. Setting
8 Pages(2000 words)Essay
The Policy Process on Minimum Wage Setting in a Developing Country: The Case of the Garment Industry in Cambodia
Despite the revision, the wages did not stop the protest, so the authors investigated the policy process of the garment industry minimum wage change by inquiring about three important
15 Pages(3750 words)Essay
Let us find you another Essay on topic The Wage setting model of unemployment for FREE!
Contact us:
+16312120006
Contact Us Now
FREE Mobile Apps:
  • About StudentShare
  • Testimonials
  • FAQ
  • Blog
  • Free Essays
  • New Essays
  • Essays
  • The Newest Essay Topics
  • Index samples by all dates
Join us:
Contact Us