Chapter 9
Labor Markets
9.1 THE ECONOMIC IMPROTANCE
OF LABOR MARKETS
Competitive labor market
– where the forces of demand and supply
interact to determine wage rates and
employment.
Labor market
– channel in the economy through which
supplies of essential labor are obtained by
firms at acceptable prices and through which
the population obtains most of its livelihood by
selling its labor at offered wages and salaries.
9.1.1 Input and Living Standards
Firms:
hiring of labor in
order to achieve
their objectives
Household:
supplying labor to
achieve desired incomes
or standards of living.
make choices
best choices
9.1.2 The Centrality of Labor
exchange value (price)
sharing of power in the economy
distribution of earnings and wealth
9.1.3 Labor Market as
Vehicles for Choices
Households
– Which of their members are to
seek employment (full-time or
part-time)
– What search activity
– Which job
– Which members are to receive
education and training
– Which member are to do the
work of the household
– Which member are to migrate
Consider
– Rates of pay
– Timing
– Costs of education and training
– Costs of migration and
relocation
Firms
– Hours of labor needed
– Best mix of labor and other
inputs (machinery)
– Types of labor needed
– Hiring and firing
– Levels of,on the job” training
– Search for labor
– Rates of pay
Rates of pay
Employment
levels
The labor market is the
key institutional vehicle
which facilitates the
making of these
choices.
9.2 THE LABOR FORCE,
DEFINITION AND MEASUREMENT
9.2.1 Labor Force
Labor Force
– the sum of number of unemployed and employed
persons,for a chosen time period.
– the number of people,aged 15 and over,who worked
for pay or profit,or who were unemployed.
Employed
– those who worked for one hour or more for monetary
return or who worked for 15 hours or more of unpaid
work in a family business.
Unemployed
– those who are available for work and who are actively
looking for employment.
Not in the labor force
– those who are neither employed nor unemployed,
– the aged,the very young,full-time students…
9.2.2 Participation Rate
Participation Rate
– the proportion of the specific population that is
in the labor force.
– expected rates of pay,taxation rates,social
welfare payments,income of other household
members…
Unemployment Rate
– the ratio of the number of unemployed to the
labor force.
– cyclical unemployment,hidden unemployment,
structural unemployment,seasonal
unemployment,natural rate of unemployment.
Cyclical unemployment
– unemployment caused by the economy’s business cycle
performance.
Hidden unemployment
– the number of people who are not employed,who would like
to work and who have given up looking for work because of
the poor condition of the economy,(discouraged workers)
Structural unemployment
– the number of total unemployed who are unemployed because
of the mismatch between jobs available and the skills of the
unemployed.
Seasonal unemployment
– the number of total unemployed who are unemployed because
of seasonal fluctuations in the economy.
Natural rate of unemployment
– the unemployment rate which is normal for a country.
9.3 LOBOR SUPPLY,
HOUSEHOLDS’ CHOICES
Economic model of household choice in
labor market
– make the best choice (maximizing utility)
Regarding the supply of
– hours of work
– investment in human capital
– labor migration
Simple Model
– people choosing to allocate their total available
hours between work for pay and leisure.
Wage rate has increased…
1,more hours of work would offered
price of leisure has increased
household has chosen to purchase less
leisure,choosing more hours of work
2,fewer hours of work would offered
household’s income is now so high
it chooses to offer less work and take
more leisure
3,same hours of work would offered
Market Supply of labor
more hours are offered at higher wage
rates – a positive relation
Wage-Elasticity of Supply
– the responsiveness of labor supply to changes
in the wage rate.
What causes the labor supply curve to
shift?
– Change in employment rate
– Change in income tax rate
– Changes in tastes
– Changes in alternative opportunities
– Immigration
9.4 THE DEMAND FOR LABOR,
FIRMS’ CHOICES
Economic model of firm choice in labor
market
– make the best choice (maximizing profit)
Regarding
– hours of employment to demand
– worker training
– rates of pay
derived demand
– marginal product of labor
– value of marginal product
diminishing returns
– contribution of additional hours of labor to
revenue will also fall.
Market Demand for Labor
an inverse relation between wage rate and
the quantity of labor demand.
Wage-elasticity of demand
– the responsiveness of labor demanded to
changes in the wage rate.
What causes the labor demand curve to
shift?
– the output price
– technological change
– the supply of other factors
9.5 Categories of Labor Market
9.5.1 The Competitive Labor Market
Characterized by
– large numbers of buyers and sellers.
– no buyer or seller has any market power and
the wage rate and level of employment is
determined by competitive market.
Equilibrium (in balance)
– demand and supply curve intersect.
– the market clears at this wage; all those who
wish to work at this wage rate are employed.
9.5.2 Other Types of Labor Markets
in terms of competition
– competitive labor market
– non-competitive labor market (monopsony,bilateral
monopoly)
in terms of location
– local labor market
– regional labor market
– national labor market
– global labor market
in terms of institutions
– internal labor market
– open labor market
9.6 Labor Market Analysis,
applying the competitive model
Labor Markets
9.1 THE ECONOMIC IMPROTANCE
OF LABOR MARKETS
Competitive labor market
– where the forces of demand and supply
interact to determine wage rates and
employment.
Labor market
– channel in the economy through which
supplies of essential labor are obtained by
firms at acceptable prices and through which
the population obtains most of its livelihood by
selling its labor at offered wages and salaries.
9.1.1 Input and Living Standards
Firms:
hiring of labor in
order to achieve
their objectives
Household:
supplying labor to
achieve desired incomes
or standards of living.
make choices
best choices
9.1.2 The Centrality of Labor
exchange value (price)
sharing of power in the economy
distribution of earnings and wealth
9.1.3 Labor Market as
Vehicles for Choices
Households
– Which of their members are to
seek employment (full-time or
part-time)
– What search activity
– Which job
– Which members are to receive
education and training
– Which member are to do the
work of the household
– Which member are to migrate
Consider
– Rates of pay
– Timing
– Costs of education and training
– Costs of migration and
relocation
Firms
– Hours of labor needed
– Best mix of labor and other
inputs (machinery)
– Types of labor needed
– Hiring and firing
– Levels of,on the job” training
– Search for labor
– Rates of pay
Rates of pay
Employment
levels
The labor market is the
key institutional vehicle
which facilitates the
making of these
choices.
9.2 THE LABOR FORCE,
DEFINITION AND MEASUREMENT
9.2.1 Labor Force
Labor Force
– the sum of number of unemployed and employed
persons,for a chosen time period.
– the number of people,aged 15 and over,who worked
for pay or profit,or who were unemployed.
Employed
– those who worked for one hour or more for monetary
return or who worked for 15 hours or more of unpaid
work in a family business.
Unemployed
– those who are available for work and who are actively
looking for employment.
Not in the labor force
– those who are neither employed nor unemployed,
– the aged,the very young,full-time students…
9.2.2 Participation Rate
Participation Rate
– the proportion of the specific population that is
in the labor force.
– expected rates of pay,taxation rates,social
welfare payments,income of other household
members…
Unemployment Rate
– the ratio of the number of unemployed to the
labor force.
– cyclical unemployment,hidden unemployment,
structural unemployment,seasonal
unemployment,natural rate of unemployment.
Cyclical unemployment
– unemployment caused by the economy’s business cycle
performance.
Hidden unemployment
– the number of people who are not employed,who would like
to work and who have given up looking for work because of
the poor condition of the economy,(discouraged workers)
Structural unemployment
– the number of total unemployed who are unemployed because
of the mismatch between jobs available and the skills of the
unemployed.
Seasonal unemployment
– the number of total unemployed who are unemployed because
of seasonal fluctuations in the economy.
Natural rate of unemployment
– the unemployment rate which is normal for a country.
9.3 LOBOR SUPPLY,
HOUSEHOLDS’ CHOICES
Economic model of household choice in
labor market
– make the best choice (maximizing utility)
Regarding the supply of
– hours of work
– investment in human capital
– labor migration
Simple Model
– people choosing to allocate their total available
hours between work for pay and leisure.
Wage rate has increased…
1,more hours of work would offered
price of leisure has increased
household has chosen to purchase less
leisure,choosing more hours of work
2,fewer hours of work would offered
household’s income is now so high
it chooses to offer less work and take
more leisure
3,same hours of work would offered
Market Supply of labor
more hours are offered at higher wage
rates – a positive relation
Wage-Elasticity of Supply
– the responsiveness of labor supply to changes
in the wage rate.
What causes the labor supply curve to
shift?
– Change in employment rate
– Change in income tax rate
– Changes in tastes
– Changes in alternative opportunities
– Immigration
9.4 THE DEMAND FOR LABOR,
FIRMS’ CHOICES
Economic model of firm choice in labor
market
– make the best choice (maximizing profit)
Regarding
– hours of employment to demand
– worker training
– rates of pay
derived demand
– marginal product of labor
– value of marginal product
diminishing returns
– contribution of additional hours of labor to
revenue will also fall.
Market Demand for Labor
an inverse relation between wage rate and
the quantity of labor demand.
Wage-elasticity of demand
– the responsiveness of labor demanded to
changes in the wage rate.
What causes the labor demand curve to
shift?
– the output price
– technological change
– the supply of other factors
9.5 Categories of Labor Market
9.5.1 The Competitive Labor Market
Characterized by
– large numbers of buyers and sellers.
– no buyer or seller has any market power and
the wage rate and level of employment is
determined by competitive market.
Equilibrium (in balance)
– demand and supply curve intersect.
– the market clears at this wage; all those who
wish to work at this wage rate are employed.
9.5.2 Other Types of Labor Markets
in terms of competition
– competitive labor market
– non-competitive labor market (monopsony,bilateral
monopoly)
in terms of location
– local labor market
– regional labor market
– national labor market
– global labor market
in terms of institutions
– internal labor market
– open labor market
9.6 Labor Market Analysis,
applying the competitive model
