Hiring Standards: Labor Market Measures and Worker Risk Models

Vocabulary flashcards covering key labor market definitions, measurement formulas, cost effectiveness, and risky worker hiring models from Econ 152.

Employed

An individual who worked at least $1\,\text{hour}$ for pay or at least $15\,\text{hours}$ on an unpaid job during the past week, including those temporarily absent due to vacation or illness.

Unemployed

An individual who is currently on a temporary layoff or has no job but is actively looking for work.

Labor Force ($LF$)

The total number of non-institutionalized civilian adults who are either employed ($E$) or unemployed ($U$), defined by the formula $LF = E + U$.

Out of Labor Force ($OLF$)

The portion of the civilian adult population ($P$) that is neither employed nor unemployed, calculated as $OLF = P - E - U$.

Civilian Adult Population ($P$)

The total population of civilian adults aged $16$ years or older who are not residing in institutions.

Labor Force Participation Rate ($LFPR$)

The ratio of the labor force to the total civilian adult population, calculated as $LFPR = \frac{LF}{P}$.

Employment Population Ratio ($EPR$)

The percentage of the civilian adult population that is employed, calculated as $EPR = \frac{E}{P}$.

Unemployment Rate ($UR$)

The percentage of the labor force that is unemployed, calculated as $UR = \frac{U}{LF}$.

Hidden Unemployed

Persons who have left the labor force after giving up on their job search.

2016 Bureau of Labor Statistics Job Data

Data indicating $28.1\,\text{million}$ gross jobs lost (with $1.5\,\text{million}$ or $5.1\%$ lost to outsourcing) and $29.7\,\text{million}$ gross jobs created, leading to $1.6\,\text{million}$ net jobs created.

Labor Cost Effectiveness

The principle that labor efficiency should be evaluated using the ratio of wages to output (cost per unit of sales) rather than wage rates alone.

Capital-Labor Interaction

The concept that equipment upgrades shift optimal hiring choices, as seen when new $11\,\text{dollars/day}$ sewing machines made skilled workers ($6.25\,\text{dollars/shirt}$) more cost effective than unskilled workers ($6.38\,\text{dollars/shirt}$).

Wage Variation Explanation

The observation that education and years of experience explain only about $20\%$ of wage variation across workers, with matching playing a significant role in accounting for the remainder.

Rationality Assumption

The economic assumption that individuals and firms always select the option that maximizes their total payoff.

Risk Neutrality

The assumption that decision-makers care strictly about expected value and are indifferent to the level of risk associated with an option.

Lemons (Worker Screening)

Low-productivity workers who cannot be distinguished from high-productivity workers at the interview stage, but whose actual productivity becomes known after employment.

Expected Profit Advantage of Risky Workers

The outcome where hiring riskier workers yields higher expected profits for risk-neutral firms because low-productivity 'lemons' can be fired after their type is identified.

Present Value Formula (Discounting)

The formula $PV = (1 + r)^{-(t-1)}$ used to calculate the present value of earnings in year $t$ given interest rate $r$.

Employee Turnover Formula

The equation $N_t = (1 - \theta)^{t-1} N_1$ representing the remaining workers in period $t$ when an annual fraction $\theta$ leaves the firm voluntarily.

Wrongful Dismissal Costs

Factors that make firing workers costly or difficult, including anti-discrimination laws, difficulty in documenting low productivity, and union rules or collective bargaining agreements.