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Economics of Labor Markets

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  Laranang, Russell John B. Cpe-2  ECONOMICS OF LABOR MARKETS There are three main groups of actors or participants in the labor market: individuals, firms (or employers), and the government Individuals make labor market decisions concerning:    whether and when to enter the labor force,    how much education, training and job search to undertake,    what type of work (which occupation and industry),    how many hours to work each week (and weeks per year),    what wage, or wage increase, to demand,    whether to quit one's current job and look for another job, possibly in another region, industry, or occupation,    whether to join a union or employee association,    when to retire Firms make labor market decisions concerning:    how many workers to hire and how many hours of work to require,    what type of worker to hire (what skills are required)    what wages and fringe benefits to pay,    when to lay-off employees and perhaps close a plant,    what type of work can be subcontracted out,    how to design an effective pension and retirement policy Governments set various policies that have direct implications for the labour market decisions of individuals and firms:    human rights and anti-discrimination laws    employment standards and laws concerning minimum wages, hours of work and overtime, maternity and paternity leave,    occupational health and safety laws, and workers compensation     providing subsidized university/college tuition and public training programs    labor relations laws regulating the collective bargaining process    (un)employment insurance and income maintenance (social assistance) policies     public pensions     providing jobs in the public sector Subject Matter of Labor Market Economics -Labor market economics involves analyzing the determinants of the various dimensions of labor supply and demand, which interact to determine wages, employment and unemployment  -There are many dimensions to labor supply, including demographics (the effects of a  baby boom), immigration and emigration policies (perhaps a brain drain?), the labor force  participation decision, the hours of work decision (including overtime and moonlighting), education and training (human capital decisions), and the disincentive effects of income maintenance and unemployment insurance policies -Labor demand focuses on how firms vary their demand for labor in response to changes in the wage rate and other costs, including fringe benefits, legislatively imposed costs, and the quasi-fixed costs associated with hiring and training workers -Since labor demand is a derived demand (derived from the demand for the firm's output), it is also influenced by factors such as free trade, global competition and technological change -Labor market outcomes are also influenced by the type of market structure (the degree of competition), union collective bargaining and various government laws (such as minimum wage laws) -Labor market economics also studies various wage structures including occupational, industrial and regional wage differentials, union/non-union wage differentials, and male/female wage differentials (the issue of sex discrimination in the labor market) Labor Demand 1.   Factors that can increase or decrease labor  demand include changes in the output  price, technological change and the supply of other production inputs. 2.   Technological improvement can bring about an increase in the marginal product of labor, which in turn increases the firm's demand for labor. 3.   Any factor that affects the firm's profit maximization  problem will likely change the amount of labor the firm demands in relation to other inputs ã   Labor is an input in the production process just as other inputs ã   Firms are interested in maximizing profit and in so doing generate demand for labor ã   Factors that can increase or decrease labor  demand include changes in the output  price, technological change and the supply of other production inputs. ã   Technological improvement can bring about an increase in the marginal product of labor, which in turn increases the firm's demand for labor. ã   Any factor that affects the firm's profit maximization  problem will likely change the amount of labor the firm demands in relation to other inputs.
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