The Labor Market

Learning ObjectivesAt the end of the course, the students are expect to:understand the concept and the importance of labor marketunderstand the nature of unemploymentbe able to determine the wage determination and price determinationunderstand natural rate of unemployment

Household Supply and Employer Demand Labor market looks at the decisions of individuals to work and the demand by employers for workers The household labor supply decision will have a positive relationship to the wage rate; the higher the wage obtained, the greater our desire to work

Cont.. The demand for labor by businesses, governments and other employers will have a negative relationship to the wage rate As the wage rate increases, the cost of hiring workers increase as well. With higher wage rates, employers increasingly seek for lower-cost alternatives to labor, such as capital.

Equilibrium in Labor MarketWage rate, wQuantity of LaborSupply of LaborDemand for Laborw*QL*The labor market sets the wage rate, w*

Nature of Unemployment Unemployment is a measure of those people who are actively seeking work but cannot find a job which matches their qualifications.

The goal of macroeconomic policy is to achieve full employment

Nature of Unemployment Full employment is described as the absence of involuntary unemployment. Involuntary unemployment; characterized by individuals who would like a job that matches their skills, but not available. Some people choose to be unemployed voluntarily as they switch jobs, move from one region to another and other reasons.

In measuring unemployment, we must consider those people who are eligible to work in the labor force. The definition of labor force is all employed or unemployed civilians (16 years old and above). Nature of Unemployment, cont..

Nature of Unemployment, cont.. Those who are excluded from labor force are students, housekeepers for a working spouse, those who have given up looking for job and others who are considered as non-labor force participants.

It is important to note that actual number of unemployed is higher than reported due todiscouraged workerswho have given up to actively seeking work and have dropped out of the labor force.

Individuals may be unable to work for such reasons as disabilities, personal hardship, bad luck, a lack of skills, and other reasons.

During the depression of the 1930s, over 24% of the United States workforce were lacked of employment.Nature of Unemployment, cont..

Although the exact number is uncertain, the estimated impact of discouraged workers and underemployed (or involuntary) part-time workers would add approximately 2% - 3% to the overall unemployment rate of the United States. What is discouraged workers?

Nature of Unemployment, cont..