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Labour Market

  1. May 31, 2008 #1


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    I've come across a question which talks about the employment gap and asks me to suggest reasons on how it would occur.

    I thought better qualification could improve skills. I got this correct but I have to expand. Can someone explain how I can talk about MRP?

    Thanks in advance. :smile:
  2. jcsd
  3. May 31, 2008 #2


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    Is this a homework question, or exam? You might try up in the "homework help" subforum.

    What you mean by MRP is, I assume MARGINAL RETURN ON PRODUCT
    and there is this "MRP = W" equation which says that in a competitive market the firm will keep on hiring more workers as long as the marginal return it gets from the extra output is less than the cost of hiring extra workers. Or something like that.

    It sounds like a homework help question. Why would unemployment exist in a a perfect rational competitive market? Is that the question? Does "employment gap" mean unemployment?
    It could be that if their marginal productivity is low enough that firms don't want to pay what they think is a decent wage! Then they find something else to do. Like gardening at home, or fishing, or staying at their relatives.

    To cure that, you need to retrain the workers so their productivity is higher, so the MRP goes up and wages go up and people are drawn into the labor market etc etc. All in this idealized perfect rational economy.

    Or you have to improve the machines at the firm, so that workers productivity is higher. So then the firm can hire more because the MRP is higher and they can pay higher W.

    I'm not an econ expert. I'm just trying to help. I think they are better at it in that other subforum.
    Last edited: May 31, 2008
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