How to calculate real wages?

Labor Economics: How can I calculate the effect of unemployment on wages in a particular job market?

• I assume that when work supply (workers) is higher than what the market needs (demand from companies), this drives the wages down. On the opposite, when there are not enough people to fill in positions in a particular job market, this drives their wages up, especially for new employees but also for existing ones as they can threaten to move to another company. Knowing the current median income for a specific occupation, number of workers and number of unemployed people in this job market, how can I calculate the difference between what the current median income is and what it would be if there was no unemployment (or no lack of workers, for the opposite situation) and if work supply and demand would meet perfectly? I guess it could also be phrased as the question of elasticity of wages related to unemployment, but my course in economics 101 was a long long time ago... Thank you very much for your answers, it would be awesome if you could give me some example along with some detailed calculation explaining how you come to an answer for this specific question. Thank you!

• Answer:

  I'm afraid your goal is far too ambitious for your skills. And I do not mean that as an insult, this is an extremely complicated area. Unless you were content with a 'fake' and simple stylized model, the actual empirical work behind determining such relationships is complex, and would require massive amounts of data, coding, and econometric modelling. And even then, it wouldn't be obvious if it is the true answer. This about it like this, the unemployment level, the size of the labor force, demand in an industry, and the median income vary over time. So we would need a model to exploit the data to study the interconnectedness of these concepts. We also would likely have to control for many many other factors, which might be correlated with these two concepts. Calculating elasticity is a tough thing. You might start here: http://www.frbsf.org/economic-research/nominal-wage-rigidity/ http://www.frbsf.org/economic-research/files/wp11-23bk.pdf