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Chapter 2. The Labor Market: Definitions, Facts, and Trends. Labor Force Measures. (Adult) Civilian noninstitutional population . persons 16 years of age and older residing in the 50 States & DC not inmates of institutions (e.g., penal and mental facilities, homes for the aged), - PowerPoint PPT Presentation
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Chapter 2.
The Labor Market: Definitions, Facts, and Trends.
Labor Force Measures
• (Adult) Civilian noninstitutional population.– persons 16 years of age and older – residing in the 50 States & DC– not inmates of institutions (e.g., penal and
mental facilities, homes for the aged), – not on active duty in the Armed Forces.
Labor Force Measures
• Employed persons. – during the reference week,
• did any work at all (at least 1 hour) as paid employees,
• worked in their own business, profession, or on their own farm,
• or worked 15 hours or more as unpaid workers in an enterprise operated by a member of the family,
• all those who were not working but who had jobs or businesses from which they were temporarily absent
Labor Force Measures
• Unemployed persons. – no employment during the reference week, – available for work, except for temporary
illness, and made specific efforts to find employment some time during the 4-week-period ending with the reference week.
– Persons who were waiting to be recalled to a job from which they had been laid off need not have been looking for work to be classified as unemployed.
Labor Force Measures
• Labor force. employed + unemployed
• Unemployment rate. Unemployed / Labor Force
• Labor Force Participation rate. Labor Force / Civ. NonInst. Pop
• Employment-population ratio. Employed/ Civ. Noninst. Pop.
• Historical Data (Table B35 from Econ. Report)
1995/2005 DataAdult Civilian Noninst.
Population(203.133 / 224.640 m.)
Labor Force(136.297 / 148.203 m.)
Not in labor force(66.836 / 76.437)
Employed(129.558 / 140.156 m.)
Unemployed(6.739 / 8.047 m)
Labor force measures
1994 2005
Unemployment rate
Labor force participation rate
Employment rate
• Start with U=10 million, E=90 million, CNIP=200 million
• What would happen to unempl rate, lfpr, and empl rate if– 10 million people out of labor force begin
looking for work and 6 million find jobs.– 1 million unemployed people become
“discourage” and quit looking for work?– 1 million unemployed people find new jobs?– 1 million employed people lose jobs and .5
million choose to retire while the other .5 million begin search for new jobs.
Unemployment rates
• See employment situation for variations in unemployment rate by– Sex– Age– Education
• Why is there a correlation between these characteristics and unemployment rates?
• Wage rate X hours worked =Earnings
• Earnings + Benefits = Total Compensation
• Total compensation + unearned (non-labor) income = Total Income
Labor Earnings
Earnings Measures
Real versus Nominal Wages.
• CPIt =
• Real Waget =
• Nominal Wage represents earnings in current dollars.
• Real Wage represents earnings in constant (base year) dollars.
baseyearinbundleofCost
tinbundleofCost*100
)100/(
.
t
t
CPI
WageNom
Real versus Nominal Wages.
• Issues with Indexing– The bundle
• Varies across people/time.• Evidence that CPI over-states growth in cost of living by 1 to
1.5 percent per year).– Quality of goods
– Substitution effects
• Point in time adjustments versus across time– Comparable salary in city j = salary in city k * city j cpi
city k cpi
Real versus Nominal Wages.
• CPI data (available from BLS)• If a person earned $8 per hour in 1980, what
would yield the equivalent purchasing power in 2006?
• If a person’s nominal wage rose from $10 per hour in 2000 to $11 per hour by 2006, what happened to their real wage (in 1982-84 dollars)?
Earnings Measures
• Cost of Living by City (ACCRA)
• If a person moved from Cincinnati to Washington DC and their earnings rose from $50,000 to $60,000, did their real earnings rise or fall?
• What are some of the problems with the Cinci/DC comparison?
Labor Demand
• Changes in wages (move along D-curve)– scale effect– substitution effect
• Changes in other factors (shift D-curve)– demand for product
• scale effect, no substitution effect
– supply of other inputs (e.g. capital)• scale effect and substitution effect
Labor Demand
• Market, Industry, and Firm Demand.– different ways of measuring labor demand.
• Long run versus short run demand.– substitution effects tend to be larger in the
long run, making labor demand more elastic in the long run.
Labor Supply
• Labor supply curve.– Market supply curve: upward sloping.– Firm supply curve: horizontal in competitive market.
• Factors shifting labor supply:– population.– alternative opportunities (other employment,
nonemployment)– taxes– non-pecuniary aspects of job (fringes, risk, night
shifts, etc.)
Labor Market Equilibrium
• If wage is below equilibrium: shortage.• If wage is above equilibrium: surplus (unemployment).• Shortages put upward pressure on wages. Surpluses put downward pressure on wages.
Labor Market Equilibrium
• Effect of – Increased population– Increased tax on employers– Increased tax on employees– Cheaper capital– Cheaper imports– Increased demand for product