1. Lectures in Macroeconomics- Charles W. Upton Temporary or Permanent?

2. Temporary or Permanent Our Revised Model D S SR S LR H* w*

3. Temporary or Permanent The Demand Curve D S SR S LR H* w* The demand curve shows us the demand for work as a function of the wage rate.

4. Temporary or Permanent The Long Run Supply Curve D S SR S LR H* w* The demand curve shows us the demand for work as a function of the wage rate. The long run supply curve S LR shows us how people will respond to a permanent rise in labor demand.

5. Temporary or Permanent The Short Run Supply Curve D S SR S LR H* w* The demand curve shows us the demand for work as a function of the wage rate. The long run supply curve S LR shows us how people will respond to a permanent rise in labor demand. The short run supply curve S SR shows us how people will respond to a temporary rise in labor demand

6. Temporary or Permanent Expectations D S SR S LR H* w* The demand curve shows us the demand for work as a function of the wage rate. The long run supply curve S LR shows us how people will respond to a permanent rise in labor demand. The short run supply curve S SR shows us how people will respond to a temporary rise in labor demand Or what they expect is a temporary rise.

7. Temporary or Permanent Some Applications D S SR S LR H* w* When are you on your short run labor supply and when are you on your long run labor supply function?

8. Temporary or Permanent John Smith D S SR S LR H* w* John Smith, currently employed at $10 an hour, loses his job. He starts looking for a new, comparable job, but it will take some time. In the meantime, the best he can find is a pizza baker at $6 an hour.

9. Temporary or Permanent John Smith D S SR S LR H* w* John Smith, currently employed at $10 an hour, loses his job. He starts looking for a new, comparable job, but it will take some time. In the meantime, the best he can find is a pizza baker at $6 an hour. John is on his short run labor supply curve

10. Temporary or Permanent Frank Wilson D S SR S LR H* w* Frank Wilson is a junior economics major. Right now, the best job he can find is a job at Miller’s Pizzeria at $6 an hour

11. Temporary or Permanent Frank Wilson D S SR S LR H* w* Frank Wilson is a junior economics major. Right now, the best job he can find is a job at Miller’s Pizzeria at $6 an hour Frank is on his short run labor supply curve

12. Temporary or Permanent Bill Wilson D S SR S LR H* w* Bill Wilson, Frank's twin brother, is not going to college. He, too, learns that the best job he can find is baking pizzas at $6 an hour.

13. Temporary or Permanent Bill Wilson D S SR S LR H* w* Bill Wilson, Frank's twin brother, is not going to college. He, too, learns that the best job he can find is baking pizzas at $6 an hour. Bill is on his long run labor supply curve

14. Temporary or Permanent Life is Uncertain D S SR S LR H* w* Sometimes it isn't clear whether you which curve you are on.

15. Temporary or Permanent Sally Jones D S SR S LR H* w* Sally Jones is majoring in Fashion Design. One of her designs has fascinated a famous designer in New York, who has offered her the chance to come to Manhattan and work at $100 an hour completing the design and helping design a whole line

16. Temporary or Permanent Sally Jones D S SR S LR H* w* Sally Jones is majoring in Fashion Design. One of her designs has fascinated a famous designer in New York, who has offered her the chance to come to Manhattan and work at $100 an hour completing the design and helping design a whole line It isn’t clear whether Sally is on her long run or short run labor supply curve.

17. Temporary or Permanent Edith Wilson D S SR S LR H* w* Edith Wilson has been laid off from her $20 an hour job. The best job she can find now is at $14 and hour, and she cannot do better unless the economy picks up.

18. Temporary or Permanent Edith Wilson D S SR S LR H* w* Edith Wilson has been laid off from her $20 an hour job. The best job she can find now is at $14 and hour, and she cannot do better unless the economy picks up. Business Week and the Wall Street Journal have both run stories forecasting rapid economic growth in coming months

19. Temporary or Permanent Edith Wilson D S SR S LR H* w* Edith Wilson has been laid off from her $20 an hour job. The best job she can find now is at $14 and hour, and she cannot do better unless the economy picks up. Business Week and the Wall Street Journal have both run stories forecasting rapid economic growth in coming months Edith, alas, doesn’t read business publications often. On the few occasions she does read, she is skeptical about what she reads.

20. Temporary or Permanent Edith Wilson D S SR S LR H* w* Edith Wilson has been laid off from her $20 an hour job. The best job she can find now is at $14 and hour, and she cannot do better unless the economy picks up. Business Week and the Wall Street Journal have both run stories forecasting rapid economic growth in coming months Edith, alas, doesn’t read business publications often. On the few occasions she does read, she is skeptical about what she reads. Though Edith should read more, she gets kudos for some skepticism. No matter what the papers say, however, Edith is on her LR curve if she does not expect recovery, and her SR curve if she does.

21. Temporary or Permanent Edith Wilson Again D S SR S LR H* w* Some years later, Edith Wilson has been laid off again from her $20 an hour job. The best job she can find now is at $14 and hour, and she cannot do better unless the economy picks up.

22. Temporary or Permanent Edith Wilson Again D S SR S LR H* w* Some years later, Edith Wilson has been laid off again from her $20 an hour job. The best job she can find now is at $14 and hour, and she cannot do better unless the economy picks up. Having learned her lesson, she reads more. Now Business Week and the Wall Street Journal say recovery is uncertain.

23. Temporary or Permanent Edith Wilson Again D S SR S LR H* w* Some years later, Edith Wilson has been laid off again from her $20 an hour job. The best job she can find now is at $14 and hour, and she cannot do better unless the economy picks up. Having learned her lesson, she reads more. Now Business Week and the Wall Street Journal say recovery is uncertain. Should Edith move along her LR or SR labor supply curve?

24. Temporary or Permanent Edith Wilson Again D S SR S LR H* w* Some years later, Edith Wilson has been laid off again from her $20 an hour job. The best job she can find now is at $14 and hour, and she cannot do better unless the economy picks up. Having learned her lesson, she reads more. Now Business Week and the Wall Street Journal say recovery is uncertain. Should Edith move along her LR or SR labor supply curve? This is a tricky problem. We will come back to it.

25. Temporary or Permanent Jacque Dreze D S SR S LR H* w* Jacque Dreze, a French Citizen, finds his after tax wages cut by 40% thanks to new government taxes.

26. Temporary or Permanent Jacque Dreze D S SR S LR H* w* Jacque Dreze, a French Citizen, finds his after tax wages cut by 40% thanks to new government taxes. The good news is that the French government spends the money on things for Jacque which he would have bought anyway.

27. Temporary or Permanent Jacque Dreze D S SR S LR H* w* LR or SR?

28. Temporary or Permanent Jacque Dreze D S SR S LR H* w* LR or SR? SR

29. Temporary or Permanent Summary

30. Temporary or Permanent Summary Often, it is clear when a wage rate is temporary or permanent.

31. Temporary or Permanent Summary Often, it is clear when a wage rate is temporary or permanent. But there are cases when it is not.

32. Temporary or Permanent Summary Often, it is clear when a wage rate is temporary or permanent. But there are cases when it is not. The uncertainty case is complicated. We focus initially on the certain cases.

33. Temporary or Permanent End ©2004 Charles W. Upton. All rights reserved