1. The Labour Market

2. At this wage rate everyone who is willing to work can find a job.
The equilibrium wage (we) rate is that wage rate where the quantity of labour demanded (available jobs) equals the quantity of people willing to work.
At this wage rate everyone who is willing to work can find a job.
The market “clears”
However not everyone in the labour force will be employed at this wage rate. W we
Employed

3. Worksheet then Workbooks page 157

4. Voluntary and Involuntary Unemployment
Voluntary Unemployment= Those people who don’t have a job, but at the existing wage do not seek employment
Involuntary Unemployment = Those who would like to work at the existing wage rate but cannot get a job.
At the equilibrium wage rate there is no involuntary unemployment.
Looking at the graph what do you think Voluntary Unemployment is? These people do not think it is worth their time to get out of bed and go to work at the current wage rate.
What do you think Involuntary Unemployment is? These people want to work but cannot get a job. This may be due to a lack of skills by the worker or that the firm is not hiring any more workers at the current time.

5. The Real wage rate
w=W P
Real wages are equal to the nominal wages over the price level
Real wages are inflation adjusted and thus show the purchasing power of wages.
We look at real wages rather than nominal ages for both workers and employers.
The real price of labour is the real wage rate. This is calculated by dividing the nominal wage by the price level. Nominal wages are the current dollar value of the wages.
Does anyone know why we do this?
Example
When we divide this by the current price level we are adjusting for inflation which gives us the real purchasing power of our wages.

6. Changes in the Labour Market
If wages are paid above the equilibrium wage rate there will be a surplus of available workers and involuntary unemployment will occur.
There will be pressure for wages to fall
W/p1

7. Changes in the labour market
If wages are paid below the equilibrium wage rate there will be a shortage of available workers
There will be pressure for wages to rise.
The existence of involuntary unemployment in NZ suggests that the labour market does not clear. QS Qd
Shortage

8. Workbooks page