LR LD
Which factors determine labour demand elasticity?
Elasticity of substitution between capital and labour
Price elasticity of the demand of the output
Elasticity of the supply of other inputs
Labour share in total cost
(The greater these, the more elastic LD is)
What determines the chance of success of a labour union?
Labour demand elasticity: the more inelastic, the greater chances the union has to succeed
When do we say that two production inputs are substitutes (complements)?
When their cross-elasticity of factor demand is positive (negative)
Which problems do we face when we analyze shifts in LS or LD? How do we solve them?
Endogeneity problems: reverse causality and omitted variables.
We can solve them using instrumental variables
Which are the requirements to use an instrumental variable?
It must be relevant and valid:
Relevant: strongly correlated with the explanatory variable
Valid: uncorrelated with the error term
What is the optimality condition for the firm to set the optimal mix of capital and labour? What is the intuition behind?
The isocost line is tangent to the isoquant.
In the optimum, any dollat spent on an addtional worker hour or unit of capital yields the same additional output.
MPE/w = MPK/r
What is a skill biased technological change?
A technological change that increases the demand of high-skill labour and reduces the demand for low-skilled, with the underlying hypothesis that technology acts as a substitute for low-skill workers but as a complement for high-skill
What is job polarisation? Which consequences does it have?
The phenomenon in which wages and employment fall particularly in the middle of the education distribution, because a skill biased technological change reduces the demand for routine tasks relative to high-skilled and blue collar jobs.
As a consequence, there is a wage gap between high and low skill occupations and a reduction in social mobility