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Labour

Economics

Labor????
The aggregate of all human physical and
mental effort used in creation of
goods and services.
Labor is a primary factor of production.
The size of a nation's labor force is
determined by the size of its adult
population, and the extent to which the
adults are either working or are prepared
to offer their labor for wages.

Labour
Labour economics can be simply
economics
defined as the economic analysis of
labour market, where as, business
dictionary illustrates labour market
as (usually) an informal market
where workers find paying work,
employers find willing workers, and
where wage rates are determined.
---------------------------------www.business
dictionary.com
Study of economic behavior of employers
and employees in response to changing
prices,
profits,
wages,
and
working conditions.

Labor
economics
is
the
field
of
economics,
which
examines
the
organization, functioning, and outcomes
of labor markets; the decisions of
prospective and present labor market
participants; and the public policies,
which relate to the employment and
payment of labor resources.
Campbell R. McConnell, Stanley L. Brue, David
MacPherson
(2005),
Contemporary Labor Economics

Labour economics seeks to understand the


functioning and dynamics of the markets for
wage labour.
Labour markets function through the interaction
of workers and employers.
Labour economics looks at the suppliers of labour
services (workers), the demands of labour
services (employers), and attempts to understand
the resulting pattern of wages, employment, and
income.
In economics, labour is a measure of the work
done by human beings. It is conventionally
contrasted with such other factors of production
as land and capital. There are theories which have
developed a concept called human capital
(referring to the skills that workers possess, not
necessarily their actual work).

Distinction of labor and scope of labor economics

Labor possess some distinguishable


characteristics than those of other goods or
services.
Labor services are rented, not sold
Suppliers of labor care about the way in
which the labor is used
Labor productivity is affected by pay and
working conditions
labor supply is affected by Non-monetary
aspects (i.e., leisure time)

Distinction of labor and scope of labor economics


Aspect of Labor

Explanations &
Examples
1. Labor is a factor Unlike most goods
of production, not a which Households
final product.
buy, labor is one of
the few goods they
sell.

Consequences

-income effects work in different ways


for labor than other goods; perverse
responses like backward-bending
labor supply are more likely
-the demand for labor is a derived
demand, from the demand firms face
for their products
2. Like capital,
The stock in this
-the stock must be produced and
labor is a flow of
case is the worker
maintained: education, training are
services attached
and the skills he/she needed.
to a stock of
possesses.
-in most cases, delivery of the flow
equipment.
The flow is the
requires physical presence: quality of
right to use it for a
the work environment matters
period of time.
3. Unlike capital, the -Slavery is prohibited -borrowing constraints may matter for
-For various reasons,
stock cannot be
human capital investment (education)
people cant sell
bought and sold.
-human capital investment is riskier
shares in themselves, than physical capital investment
for example to finance
because it is non-diversifiable
education

Aspect of Labor

Explanations & Examples

Consequences

4. Labor is a very
heterogeneous
commodity

-Workers are differentiated by


type of skill, amount of skill,
demographic characteristics.

-a wide variety of prices

5. The quality of labor


services being supplied is
often hard to measure.

-workers may simply shirk


-poor management decisions
may not be apparent for years

6. Sometimes the
demanders and/or
suppliers of labor have
considerable monopoly
power.

-employers associations,
company towns, other

-compensation and
incentive systems
need to be designed
appropriately
-use
monopoly/monopson
y and search theory
to study these
markets

7. Labor markets are


highly regulated; the
exchange of labor is both
highly taxed and
subsidized

-income and payroll taxes


-income support programs
-workplace safety legislation
-immigration policy
-industrial relations legislation
-affirmative action, comparable worth

monopsonists

-unions
-search costs, relationshipspecific
skills and bilateral monopoly.

and market conditions for


different labor services can
coexist. This gives rise to a
distribution of earnings.

-government policy
has important effects
on labor markets