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© 2002 Prentice Hall Business Publishing© 2002 Prentice Hall Business Publishing Principles of Economics, 6/ePrinciples of Economics, 6/e Karl Case, Ray FairKarl Case, Ray Fair
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Prepared by: Fernando Prepared by: Fernando Quijano and Yvonn QuijanoQuijano and Yvonn Quijano
The Labor Market, The Labor Market, Unemployment, and Inflation Unemployment, and Inflation
© 2002 Prentice Hall Business Publishing© 2002 Prentice Hall Business Publishing Principles of Economics, 6/ePrinciples of Economics, 6/e Karl Case, Ray FairKarl Case, Ray Fair
The Classical View of the Labor MarketThe Classical View of the Labor Market
• The view of classical economists was that The view of classical economists was that if the quantity of labor demanded and the if the quantity of labor demanded and the quantity of labor supplied are brought into quantity of labor supplied are brought into equilibrium by rising and falling wage equilibrium by rising and falling wage rates, there should be no persistent rates, there should be no persistent unemployment above the frictional and unemployment above the frictional and structural amount.structural amount.
© 2002 Prentice Hall Business Publishing© 2002 Prentice Hall Business Publishing Principles of Economics, 6/ePrinciples of Economics, 6/e Karl Case, Ray FairKarl Case, Ray Fair
The Classical View of the Labor MarketThe Classical View of the Labor Market
• The The labor demand labor demand curvecurve illustrates the illustrates the amount of labor that amount of labor that firms want to employ firms want to employ at the particular wage at the particular wage rate.rate.
• The The labor supply labor supply curvecurve illustrates the illustrates the amount of labor that amount of labor that households want to households want to supply at the particular supply at the particular wage rate.wage rate.
© 2002 Prentice Hall Business Publishing© 2002 Prentice Hall Business Publishing Principles of Economics, 6/ePrinciples of Economics, 6/e Karl Case, Ray FairKarl Case, Ray Fair
The Classical View of the Labor MarketThe Classical View of the Labor Market
• If labor demand If labor demand decreases, the decreases, the equilibrium wage will equilibrium wage will fall. Everyone who fall. Everyone who wants a job at W* will wants a job at W* will have one. There is have one. There is always always full employmentfull employment in this sense.in this sense.
• Classical economists Classical economists believe that the labor believe that the labor market always clears.market always clears.
