Labour (economics)

Labour economics seeks to understand the functioning and dynamics of the markets for wage labour. Labour is a commodity that is supplied by labourers, usually in exchange for a wage paid by demanding firms. Because these labourers exist as parts of a social, institutional, or political system, labour economics must also account for social, cultural and political variables.

A "help wanted" sign seeks available workers for jobs.

Labour markets or job markets function through the interaction of workers and employers. Labour economics looks at the suppliers of labour services (workers) and the demanders of labour services (employers), and attempts to understand the resulting pattern of wages, employment, and income. These patterns exist because each individual in the market is presumed to make rational choices based on the information that they know regarding wage, desire to provide labour, and desire for leisure. Labour markets are normally geographically bounded, but the rise of the internet has brought about a 'planetary labour market' in some sectors.

Labour is a measure of the work done by human beings. It is conventionally contrasted with other factors of production, such as land and capital. Some theories focus on human capital, or entrepreneurship, (which refers to the skills that workers possess and not necessarily the actual work that they produce). Labour is unique to study because it is a special type of good that cannot be separated from the owner (i.e. the work cannot be separated from the person who does it). A labour market is also different from other markets in that workers are the suppliers and firms are the demanders.

Macro and micro analysis of labour markets

There are two sides to labour economics. Labour economics can generally be seen as the application of microeconomic or macroeconomic techniques to the labour market. Microeconomic techniques study the role of individuals and individual firms in the labour market. Macroeconomic techniques look at the interrelations between the labour market, the goods market, the money market, and the foreign trade market. It looks at how these interactions influence macro variables such as employment levels, participation rates, aggregate income and gross domestic product.

Macroeconomics of labour markets

Job advertisement board in Shenzhen

The labour market in macroeconomic theory shows that the supply of labour exceeds demand, which has been proven by salary growth that lags productivity growth. When labour supply exceeds demand, salary faces downward pressure due to an employer's ability to pick from a labour pool that exceeds the jobs pool. However, if the demand for labour is larger than the supply, salary increases, as employee have more bargaining power while employers have to compete for scarce labour.

The labour force (LF) is defined as the number of people of working age, who are either employed or actively looking for work (unemployed). The labour force participation rate (LFPR) is the number of people in the labour force divided by the size of the adult civilian noninstitutional population (or by the population of working age that is not institutionalized), LFPR = LF/Population.

The non-labour force includes those who are not looking for work, those who are institutionalized (such as in prisons or psychiatric wards), stay-at-home spouses, children not of working age, and those serving in the military. The unemployment level is defined as the labour force minus the number of people currently employed. The unemployment rate is defined as the level of unemployment divided by the labour force. The employment rate is defined as the number of people currently employed divided by the adult population (or by the population of working age). In these statistics, self-employed people are counted as employed.

The labour market has the ability to create a higher derivative efficiency of labour, especially on a national and international level, compared to simpler forms of labour distribution, leading to a higher financial GDP growth and output. An efficient labour market is important for the private sector as it drives up derivative income through the reduction of relative costs of labour. This presupposes that division of labour is used as a method to attain cost efficiency.

Variables like employment level, unemployment level, labour force, and unfilled vacancies are called stock variables because they measure a quantity at a point in time. They can be contrasted with flow variables which measure a quantity over a duration of time. Changes in the labour force are due to flow variables such as natural population growth, net immigration, new entrants, and retirements. Changes in unemployment depend on inflows (non-employed people starting to look for jobs and employed people who lose their jobs that are looking for new ones) and outflows (people who find new employment and people who stop looking for employment). When looking at the overall macroeconomy, several types of unemployment have been identified, which can be separated into two categories of natural and unnatural unemployment.

Natural Unemployment

• Frictional unemployment – This reflects the fact that it takes time for people to find and settle into new jobs that they feel are appropriate for them and their skill set. Technological advancement often reduces frictional unemployment; for example, internet search engines have reduced the cost and time associated with finding work and hiring decisions.
• Structural unemployment – The number of jobs available in an industry are insufficient to provide jobs to all persons who are interested in working or qualified to work in that industry. This can be due to the changes in industries prevalent in a country or because wages for the industry are too high, causing people to want to supply their labour to that industry.
• Seasonal unemployment – Unemployment due to seasonal fluctuations of demand for workers across industries, such as in the retail industry after holidays that involve a lot of shopping are over.
• Natural rate of unemployment (also known as full employment) – This is the summation of frictional and structural unemployment, that excludes cyclical contributions of unemployment (e.g. recessions) and seasonal unemployment. It is the lowest rate of unemployment that a stable economy can expect to achieve, given that some frictional and structural unemployment is inevitable. Economists do not agree on the level of the natural rate, with estimates ranging from 1% to 5%, or on its meaning – some associate it with "non-accelerating inflation". The estimated rate varies between countries and across time.

Unnatural Unemployment

• Demand deficient unemployment (also known as cyclical unemployment) – Any level of unemployment beyond the natural rate caused by the failure of markets to clear, generally due to insufficient aggregate demand in the economy. During a recession, demand is deficient, causing the underutilisation of inputs (including labour).

Aggregate expenditure (AE) can be increased by increasing consumption spending (C), investment spending (I), government spending (G), or increasing exports (X), since AE = C + I + G + X.

• Economics
• Business
• Society

• Career and Life Planning Education
• Collective bargaining
• Salary inversion
• Employment
  • Unemployment
  • Employment Protection Legislation
  • Compensation of employees
• Manual labour
• Affective labour
• Volunteer
• Unfree labour
• Offshore outsourcing
• Housework
• Human resources
  • Human Resource Management Systems
• Cost the limit of price
• Demographic economics
• Beveridge curve
• Consumer theory
• Conditional factor demands
• Labour market flexibility
• Frisch elasticity of labour supply
• Labour power
• Economic rent
• Industrial relations

References

1. Borjas, George J. (14 January 2015). Labor economics (Seventh ed.). New York, NY. ISBN 978-0-07-802188-6. OCLC 889577338.{{cite book}}: CS1 maint: location missing publisher (link)
2. "Definition of LABOR". www.merriam-webster.com. Retrieved 2022-03-01.
3. Tarling, R. (1987). "Labour Markets". In Eatwell, John; Milgate, Murray; Newman, Peter (eds.). The New Palgrave: A Dictionary of Economics (1st ed.). London: Palgrave Macmillan. pp. 1–4. doi:10.1057/978-1-349-95121-5_1213-1. ISBN 978-1-349-95121-5.
4. Graham, Mark; Anwar, Mohammad Amir (2019-04-01). "The global gig economy: Towards a planetary labour market?". First Monday. doi:10.5210/fm.v24i4.9913. ISSN 1396-0466. S2CID 108292032.
5. Kenton, Will (March 30, 2022). "Labor Market Explained: Theories and Who Is Included". Investopedia. Retrieved January 26, 2023.
6. Mankiw, N. Gregory (2016). Principles of economics (Eighth ed.). Boston, MA, USA: Cengage Learning. ISBN 978-1-305-58512-6. OCLC 974706695.
7. "What is 'Labour Market'". The Economic Times. Retrieved 15 September 2022.
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10. Gustav Ranis (February 1997). "The Micro-Economics of "Surplus Labor"" (PDF). Yale University. Retrieved January 23, 2023.
11. Frank, Robert H. (2008). Microeconomics and Behavior (PDF) (Seventh ed.). McGraw Hill/Irwin. ISBN 978-0-07-337573-1. Retrieved January 26, 2023.
12. Hacker, R. Scott (2000). "The Impact of International Capital Mobility on the Volatility of Labour Income". Annals of Regional Science. 34 (2): 157–172. Bibcode:2000ARegS..34..157H. doi:10.1007/s001689900005. S2CID 154020468.
13. Froeb, Luke M.; McCann, Brian T.; Shor, Mikhael; Ward, Michael R. (2016). Managerial economics : a problem solving approach (Fourth ed.). Boston, MA. ISBN 978-1-305-25933-1. OCLC 900237955.{{cite book}}: CS1 maint: location missing publisher (link)
14. "The Prize in Economic Sciences 2010" (PDF). NobelPrize.org (Press release). Royal Swedish Academy of Sciences. Nobel Prize Outreach AB. October 11, 2010. Retrieved January 26, 2023.
15. Lazear, Edward P.; Oyer, Paul (October 2004). "Internal and external labor markets: a personnel economics approach" (PDF). Labour Economics. 11 (5): 527–554. doi:10.1016/j.labeco.2004.01.001. S2CID 17727574. Archived from the original (PDF) on February 1, 2014. Retrieved January 26, 2023.
16. "JEL Classification Codes Guide: M5 Personnel Economics". American Economic Association. Retrieved January 26, 2023.
17. Oyer, Paul; Scott, Schaefer (2011). Personnel Economics: Hiring and Incentives (PDF). Handbook of Labor Economics. Vol. 4B. pp. 1769–1823. doi:10.1016/S0169-7218(11)02418-X. ISBN 9780444534521. S2CID 17678162. Retrieved January 26, 2023.
18. Becker, Gary S. (1971). The economics of discrimination (2d ed.). Chicago: University of Chicago Press. ISBN 0-226-04115-8. OCLC 173468.

Sources

• Thompson, E. P. (1966). The Making of the English Working Class (reprinted ed.). New York City: Vintage Books. ISBN 9780394703220.

Further reading

• Richard Blundell and Thomas MaCurdy, 2008. "labour supply," The New Palgrave Dictionary of Economics, 2nd Edition
• Freeman, R.B., 1987. "Labour economics," The New Palgrave: A Dictionary of Economics, v. 3, pp. 72–76.
• John R. Hicks, 1932, 2nd ed., 1963. The Theory of Wages. London, Macmillan.
• Handbook of Labor Economics. Elsevier. Amsterdam: North-Holland. Links to one-page chapter previews for each volume:

Orley C. Ashenfelter and Richard Layard, ed., 1986, v. 1 & 2;

Orley Ashenfelter and David Card, ed., 1999, v. 3A, 3B, and 3C

Orley Ashenfelter and David Card, ed., 2011, v. 4A & 4B.

• Mark R. Killingsworth, 1983. Labour Supply. Cambridge: Cambridge Surveys of Economic Literature.
• Jacob Mincer, 1974. Schooling, Experience, and Earnings. New York: Columbia University Press.
• Anindya Bakrie & Morendy Octora, 2002. Schooling, Experience, and Earnings. New York, Singapore National University: Columbia University Press.
• Acocella, Nicola; Di Bartolomeo, Giovanni; Hibbs, Douglas A. (2008). "Labor market regimes and the effects of monetary policy". Journal of Macroeconomics. 30: 134–156. doi:10.1016/j.jmacro.2006.08.006. hdl:2077/25796. S2CID 5758901.
• Cain, Glen G. (1976). "The Challenge of Segmented Labor Market Theories to Orthodox Theory: A Survey". Journal of Economic Literature. 14 (4): 1215–1257. JSTOR 2722547.
• Lindbeck, Assar; Snower, Dennis J. (1986). "Wage Setting, Unemployment, and Insider-Outsider Relations". American Economic Review. 76 (2): 235–239. JSTOR 1818771.
• McGaughey, Ewan (2014-06-30). "Behavioural Economics and Labour Law". SSRN Electronic Journal. doi:10.2139/ssrn.2460685. ISSN 1556-5068. S2CID 151022170. SSRN 2460685. Archived from the original on 2016-11-04.
• Head, Simon (2005-02-11). The New Ruthless Economy: Work and Power in the Digital Age. Oxford University Press. ISBN 9780195179835.
• Khan, Ali (2006-10-12). "The Dignity of Manual Labor". SSRN Electronic Journal. ISSN 1556-5068. SSRN 936890. Archived from the original on 2019-11-12.
• Miller, Doug (2013-02-05). "Towards Sustainable Labour Costing in UK Fashion Retail". SSRN Electronic Journal. doi:10.2139/ssrn.2212100. ISSN 1556-5068. S2CID 166733679. SSRN 2212100. Archived from the original on 2017-01-27.

External links

• Ageing workers EU-OSHA
• The Labour Economics Gateway – Collection of Internet sites that are of interest to labour economists
• Labour & Worklife Program at Harvard Law School, Changing Labour Markets Project
• W.E. Upjohn Institute for Employment Research
• ILO: Key Indicators of the Labour Market (KILM). 2007
• LabourFair Resources – Link to Fair Labour Practices
• Labour Research Network – Labour research programme treating various fields
• Labour Research Department – Independent labour economics research organisation