Ch.1: What is Labour Economics

Labour Economics

• Deals with the supply and demand of labour, an important factor of prouction

• Examines how to determine three outcomes

  • Wages: the price of labour

  • Employment: quantity of jobs in the market

  • Distribution of labor income: amoung individals and households

A Typical Lorenz Curve

• Graphical rep. of the distribution of income or of wealth

• Developed by Max O in 1905

• Rep. wealth inequality

What is the Role of the Government in the Labour Market?

1. To reduce involuntary unemployment

2. To reduce waste of human resources

3. To Increase equity and fairness

4. To Prevent discriminatory practices

Oppurtunity Cost

• The value of your next best alternative

• Central concept

• : Truck driver vs. chiropractor

Economic System

• Market Economies: Free Enterprise Systems

  • Adam Smith, father of econ

  • Decentralized decisions and private ownership

• Central planning=command economies

• Mixed economies govt. and enterprises

Who makes the decision in a Market Economy?

• Rational people and firms at the margin

• Checking if marginal benefits exceeds the marginal costs

• Individuals seek to max. their utility or level of satisfaction

• Firms make decisions at the margin, adding shifts or hiring more employees

Four Main Outcomes

1. Supply: Who is supplying labour, how much?

2. Demand: Which employers are demandinf labour, what type and how much

3. Unemployment: The changing level and composition of labour

4. Earnings: The changing level and structure, who is getting paid what amounts

The Three Forces

1. Market Forces: Supply and demand

2. Instituional Forces

   • Govts.

   • Unions

   • Large companies

3. Sociological forces

   • Culture

   • Norms

Market Forces

• Include the folowing sub forces of:

  • Supply

  • Demand

  • Shortages

  • Surpluses

  • Equilibrium

Institutional Forces

• Internal labour markets

• Personnel decisions within large firms

  • Government legislation, laws , rules

• Large companies

  • : The decisions of Rogers or Amazon

• Union bargaining

  • : Auto workers

Sociological Forces

• Family structures

• Demographics

• Occupation and socioeconomic class

• Labour force participation rates

• Cultural values and biases

• Customs

Positive Statements State

How the world is

Normative Economics

How the world ought to be

Ethics

Universal codes, the golden rule