Labor economicsis the study of the workings and the
outcomes of the market for labor.
It is primarily concerned with the behavior of employers
and employees in response to the general incentives of
Wages, Prices, Profits, and Non- pecuniary aspects of the
employment relationship, such as working conditions.
Labor markets function through the interaction of workers
and employers.
Labor economics looks at the suppliers of labor services
(workers), the demanders of labor services (employers), and
attempts to understand the resulting pattern of wages,
employment, and income.
DEFINITION OF LABOR ECONOMICS
CHAPTER ONE:INTRODUCTION OF LABOR
ECONOMICS
3.
Cont.………
Labor marketsdiffer in terms of location, occupation, and skill.
A labor market tends to be more like a single market to the extent
that there is a high degree of mobility within it.
The growth of wages and employment over a period of time.
The interaction between wages, income, and the decision to
work.
The general market incentives which affect occupational choice.
The relationship between wages and undesirable job
characteristics.
The incentives for and effects of educational and training
investments
The effect of trade or worker unions on wages, productivity,
and turnover.
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Labor servicesare the direct input of human muscle and
brainpower into production.
Labor economics is primarily concerned with the behavior of
employers and employees in response to the general incentives
of wages, prices, profits and non monetary aspects of the
employment relationship.
(such as work environment, risk of injury, personality of
managers, flexibility of work hours, etc.).
It examines:
The organization, functioning and outcomes of labor markets,
The decision of prospective and present labor market participants,
The public policies relating to employment and payment of labor
resources.
Cont.……
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The justificationfor labor economics to be studied as a separate
discipline is reflected in three areas:
1. current socioeconomic issues and problems,
2. the quantitative dominance of labor as a resource, and
3. the unique characteristics of labor supply and demand.
In the first set the current socioeconomic issues and problems
are included issues such as gender and race discrimination,
legal and illegal immigration, unionization, and free trade.
Its quantitative importance is reflected in that the largest share
of national income goes to labor in most countries.
Institutional factors including unions, licensing, minimum wage
and discrimination are of particular concern to labor market
participants.
cont.….
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Labor economicsis an important subject because
unemployment is a problem that affects the public most
directly and severely.
Full employment (or reduced unemployment) is a goal of
many modern governments.
An understanding of the content and analytical tools of
labor economics contributes to more intelligent personal
and social decisions.
Before three decades or so labor economics was highly
descriptive, emphasizing historical developments, facts,
institutions, and legal considerations.
This approach called the “Old” labor economics
involved little economic analysis.
cont.…….
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Cont.……
The “New”approach uses applied microeconomic and
macroeconomic theories.
Labor economics, therefore, can generally be seen as the
application of microeconomic or macroeconomic techniques to the
labor market.
Labor economics uses theories of choice to explain behavior of
labor market participants and resulting outcomes.
Choice theories rest on three assumptions: relative scarcity,
purposeful behavior, and adaptability.
Resources like labor, capital, land and entrepreneurial
ability are limited (scarce) relative to the many individual and
collective wants of society.
Because of scarcity, we are forced to make choices and choices
involve giving something up.
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The distinctivecharacteristics of the labor market:
1. Labor services are rented, not sold.
Labor services are distinct from the other major types of inputs, such
as raw materials or capital, where physical transfer of those
resources from the seller to the buyer.
2. Labor supply decisions are more complex than that applies to
product markets.
Because labor service cannot be separated from workers, the
suppliers of labor care about the way in which the labor is used.
Non-monetary factors like job safety, stability of employment,
opportunity for training and advancement are significant in
employment transactions.
3. Labor productivity is affected by pay and working conditions.
4. On the demand side, the demand for labor is a derived demand
derived from the demand for the products it produces.
1.2. CHARACTERISTICS OF THE LABOR MARKET
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Cont.……………
Labor differsfrom land and capital as it is supplied by human
being.
Because of that, ethical and moral considerations must be taken
in to account when we deal with it as applied economics.
So the unique characteristics of labor in the economy are as:
1. Factors of production
It is an essential ingredient in the production of nearly every
commodity, along with other productive resources
2. The human resource
Formally or informally educated human being that contributes
something for the growth of production and other activity in the
economy
3. Source of income
Labor is the most widely owned factor, I.e., That means, the share of
wages, salaries, and the wage component of entrepreneurial income
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Labor Market AndThe Economy
Labor market: A market that concerned about the activities of hiring
and supplying certain labor to perform certain jobs, and it is the
process of determining how much shall be paid to whom in
performing what tasks.
It involves analyzing the determinants of the various dimensions of
labor supply and demand, which interact to determine wages,
employment and unemployment.
There are many dimensions to labor supply, including
Demographics (the effects of the baby boom),
Immigration and emigration policies (perhaps a brain drain),
The labor force participation decision,
The hours of work decision ( including overtime and moonlighting,
Education and training (human capital decisions), and
The disincentive effects of income maintenance and unemployment
insurant policies. 10
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Labor Market AndProduct Market
Labor market differs from most product markets in several
important ways.
Among these differences the most common are:
labor services are rented, not sold.
labor productivity is affected by pay and working conditions
suppliers of labor do care about the way in which the labor
is used.
Labor market is generally described in terms of
employment and earning with aim of maximizing levels of
profit and utility.
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How the labormarket works?
The labor market is one of the three markets in which firms
must successfully operate if they are to survive; the other two
are the capital market and the product market.
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One critiqueof standard economic analysis of labor markets is
that it does not account for the importance of social networks
in the employment process.
This view holds that personal connections are key issues for
both workers and employers.
Hence, employees are more likely to apply for jobs where they
have a personal connection and are more likely to be hired if they
apply.
More generally, sociologists and political economists claim
that labor economics tends to lose sight of the complexity of
individual employment decisions.
These decisions, particularly on the supply side, are often loaded
with considerable emotional baggage and a purely numerical
analysis can miss important dimensions of the process.
1.3 CRITICISMS OF LABOR ECONOMICS AND RECENT RESEARCH
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Also missingfrom most labor market analyses is the role of
unpaid labor.
Even though this type of labor is unpaid it can nevertheless play
an important part in society.
The most dramatic example is child-raising, a work which is
performed by family members without pay.
Such work is not paid for in a market, but it may have important
implications for peoples behavior in markets for paid labor,
because it constitutes an alternative use of a persons time.
These, within the household decision making include joint
labor supply, fertility, child-raising, as well as other areas of
what is generally referred to as home production.
The study couldn’t include the social and political factors of
employees and employer decision for very difficulty to measure
these factors.
Cont.…….
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