Labour Markets and Unemployment Chapter 5 Labour Markets and Unemployment © Oxford University Press, 2012. All rights reserved.

Figure 5.1: Household Preferences © Oxford University Press, 2012. All rights reserved. Figure 5.1: Household Preferences

Figure 5.1 (a): Animation 1 (Indifference Curve) Fig. 5.1 (a) Houshold Preferences: A Household Indifference Curve Utility held constant gain Consumption pain More leisure = less work Leisure © Oxford University Press, 2012. All rights reserved. Figure 5.1 (a): Animation 1 (Indifference Curve)

Figure 5.1 (b): Animation 2 (Economic Intuition) Fig. 5.1 (b) Household Preferences: Economic Interpretation of the Geometry Slope. (<0) Substitution of leisure for consumption Curve. Marginal rate of substitution is not constant. The less leisure you have, the less leisure you are willing to sacrifice for one more unit of consumption (holding utility constant). Shift. Level of economic welfare (utility). © Oxford University Press, 2012. All rights reserved. Figure 5.1 (b): Animation 2 (Economic Intuition)

Figure 5.1 (c): Animation 3 (Higher/Lower Utility) Fig. 5.1 (c) Household Preferences Higher utility Lower utility Consumption Leisure © Oxford University Press, 2012. All rights reserved. Figure 5.1 (c): Animation 3 (Higher/Lower Utility)

Figure 5.2: Budget Line and Choice Household Budget Line and Optimal Choice © Oxford University Press, 2012. All rights reserved. Figure 5.2: Budget Line and Choice

Figure 5.2 (b): Animation 2 (Tangency Condition) Fig. 5.2 (b) Budget Line and Choice: Tangency Condition Nice but we can’t afford it! We can do better than this! Highest attainable indifference curve is tangent to this budget constraint for those who work B A Consumption Leisure © Oxford University Press, 2012. All rights reserved. Figure 5.2 (b): Animation 2 (Tangency Condition)

Figure 5.2 (c): Animation 3 (Optimal Choice) Fig. 5.2 (c) Budget Line and Choice: Optimal Choice B A Consumption R Consumption Leisure Leisure Work © Oxford University Press, 2012. All rights reserved. Figure 5.2 (c): Animation 3 (Optimal Choice)

Fig. 5.3 Reaction of the Household to a Wage Increase: Labour Supply © Oxford University Press, 2012. All rights reserved. Figure 5.3: Wage Increase

Figure 5.3 (a): Animation 1 (Budget Line) Fig. 5.3 (a) Wage Increase: Effect on Budget Line B R´ Consumption R A Leisure © Oxford University Press, 2012. All rights reserved. Figure 5.3 (a): Animation 1 (Budget Line)

Table 5.1: Total Hours Worked and Real Wages Annual Total Hours Worked and Average Wages 1870 1913 1938 1973 1992 2000 2007 2009 Annual hours worked per Person France 2945 2588 1848 2027 1695 1591 1556 1558 Germany 2941 2584 2316 1566 1473 1430 1390 UK 2984 2624 2267 2016 1874 1712 1673 1646 USA 2964 2605 2062 1797 1716 1739 1709 1681 Sweden 2204 1564 1565 1642 1618 1602 Real Wage (index: 1870=100) 100 205 335 1048 1505 1614 1714 1727 185 285 944 1226 1320 1309 1306 157 256 439 605 691 770 767 189 325 595 696 791 860 871 270 521 1228 1523 2132 2085 © Oxford University Press, 2012. All rights reserved. Source: see text, p. 111 Table 5.1: Total Hours Worked and Real Wages

Figure 5.6: An Increase in Labour Productivity © Oxford University Press, 2012. All rights reserved. Figure 5.6: An Increase in Labour Productivity

Figure 5.6 (a): Animation 1 (Labour Demand Shift) Fig. 5.6 (a) An Increase in Labour Productivity: Shift in Labour Demand Hold L constant Output (Y) Labour MPL´ Real wage MPL Labour © Oxford University Press, 2012. All rights reserved. Figure 5.6 (a): Animation 1 (Labour Demand Shift)

Figure 5.8: Shifting Labour Demand and Supply © Oxford University Press, 2012. All rights reserved. Figure 5.8: Shifting Labour Demand and Supply

Figure 5.8 (a): Animation 1 (Demand Shift) Fig. 5.8 (a) Shifting Labour Demand MPL increases because of increase in A or K w and L increase A´ Real wage A Labour hours © Oxford University Press, 2012. All rights reserved. Figure 5.8 (a): Animation 1 (Demand Shift)

Figure 5.8 (b): Animation 2 (Supply Shift) Fig. 5.8 (b) Shifting Labour Supply Labour supply increases e.g. through immigrants w falls, L rises Real wage A A´ Labour hours © Oxford University Press, 2012. All rights reserved. Figure 5.8 (b): Animation 2 (Supply Shift)

Table 5.2: Weekly Hours p. P. of Working Age © Oxford University Press, 2012. All rights reserved. Source: International Labour Office Table 5.2: Weekly Hours p. P. of Working Age

Figure 5.9: Involuntary Unemployment © Oxford University Press, 2012. All rights reserved. Figure 5.9: Involuntary Unemployment

Fig. 5.9 (a) Involuntary Unemployment: Wage Fixed above Market-Clearing Level Real wage It’s a free market, so the short-side determines actual employment. B A Labour © Oxford University Press, 2012. All rights reserved. Figure 5.9 (a): Animation 1

Table 5.4 (a): Trade Unions: Membership and Coverage European Trade Unions: Membership and Coverage, 1950-2007 Union membership (%) Union coverage (%) Country Structure 1950 1970 1990 2007 UK Mostly crafts (TUC) 45 50 43 28 34.6 Germany (West Germany until 1990) Umbrella/industrial (DGB, IG, Metall, Ver.di) 38 32 36 22 61 Portugal Party, religious/ Umbrella (DGTP, UGT) — 40 90 Netherlands Party, religious (FNV, CNV, MHP) 37 24 84 Greece occupational/ sectoral (GSEE, ADEDY) 34 100 Spain Industrial, company level (CC.OO, UGT, ELA, CIGA) 12 17 60.3 France Party, religious (CGT, CFDT, CGT-FO, CFTC, CFE-CGC) 30 20 14 8 Memo: US Mostly local plant-level (AFL-CIO) n/a © Oxford University Press, 2012. All rights reserved. Source: www.eurofound.europa.eu/eiro/country_index.htm Table 5.4 (a): Trade Unions: Membership and Coverage

Table 5.4 (b): Trade Unions: Membership and Coverage European Trade Unions: Membership and Coverage, 1950-2007 Union membership (%) Union coverage (%) Country Structure 1950 1970 1990 2007 Sweden Umbrella (ILO, TCO, SAGO) 67 82 68 91 Finland Umbrella (SAK, STTK, AKAVA) 30 51 73 74 90 Denmark Umbrella (ILO, HK, FTF) 56 63 75 69 83 Norway Umbrella (LO, AF, YS) 45 50 52 Belgium Party, religious (ACV/ CSC, ABVV/ FGTB, ACLVB/ CGSLB) 43 42 51.5 96 Ireland Mostly crafts in the ICTU, fragmented 59 31.4 44 Austria Umbrella/industrial (öGB) 62 57 47 35 98–99 Italy Party, religious (CGIL, CISL, UIL) 37 39 35.6 80 © Oxford University Press, 2012. All rights reserved. Source: www.eurofound.europa.eu/eiro/country_index.htm Table 5.4 (b): Trade Unions: Membership and Coverage

Figure 5.10: Trade Unions' Indifference Curves © Oxford University Press, 2012. All rights reserved. Figure 5.10: Trade Unions' Indifference Curves

Figure 5.10 (a): Animation 1 (3 Different Curves) Fig. 5.10 (a) Trade Unions’ Indifference Curves Employment Real wage (a) Average (c) Jobs-first Employment Real wage (b) Hard-line Employment Real wage © Oxford University Press, 2012. All rights reserved. Figure 5.10 (a): Animation 1 (3 Different Curves)

Figure 5.12: Labour Market Equilibrium with a Trade Union © Oxford University Press, 2012. All rights reserved. Figure 5.12: Labour Market Equilibrium with a Trade Union

Table 5.5: Standardized Unemployment Rates © Oxford University Press, 2012. All rights reserved. Source: OECD Table 5.5: Standardized Unemployment Rates

© Oxford University Press, 2012. All rights reserved. Fig. 5.13 Minimum Wages © Oxford University Press, 2012. All rights reserved. Figure 5.13: Minimum Wages

Figure 5.13 (a): Animation 1 (No Unions, No Minimum Wage) Fig. 5.13 (a) (a) No Unions, No Minimum Wage Real wage A w L Labour © Oxford University Press, 2012. All rights reserved. Figure 5.13 (a): Animation 1 (No Unions, No Minimum Wage)

Figure 5.13 (b): Animation 2 (Unions, No Minimum Wage) Fig. 5.13 (b) (b) Unions, No Minimum Wage Real wage B A w Labour L Union-voluntary, individual-involuntary unemployment © Oxford University Press, 2012. All rights reserved. Figure 5.13 (b): Animation 2 (Unions, No Minimum Wage)

Figure 5.13 (c): Animation 3 (Minimum Wage above Union Wage) Fig. 5.13 (c) Minimum Wage above Union Wage Real wage C B A w Labour L Unemployment under a minimum wage © Oxford University Press, 2012. All rights reserved. Figure 5.13 (c): Animation 3 (Minimum Wage above Union Wage)