This is a short summary of Unit 16 needed for the course macroeconomics for the first year of the study economics and business economics in Utrecht. The summary is based on the book The Economy: Economics for a Changing World and includes illustrations from the book for clarification.
Unit 16 Technological progress, employment, and living
standards in the long run
16.7 How long does it take for labour markets to adjust to shocks?
When something like technology changes, economists look at the change in equilibrium. It is
important to know what level of employment, wages and profits are reached.
Rent-seekers cause new equilibria when conditions change, but there are long- and short
term changes in equilibria.
Short term: When a fisherman changes the price of his fish, a new equilibrium is reached
very soon.
Long term: The labour market in the US moves very slowly, because China started importing
a lot, 2.4 million jobs were lost in the US and it did not recover quickly.
16.8 Institutions and policies: why do some countries do better than others?
The labour market is doing ‘good’ when:
Price-setting curves are raised and the upward shift of the wage-setting curve is
restrained. This causes wage growth and long-run high employment.
Rapidly and fully adjustments of opportunities and technological changes.
In the short-run, technology substitutes workers and new firms shut others down, but in the
long run this causes real wage growth and lower unemployment.
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