Labor Market and Unemployment

7/29/2019 Labor Market and Unemployment

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LABOR MARKET ANDUNEMPLOYMENT

Reported by:

Jhoanna Mary E. Pescasio

MBA Student

Ariel M. Plantilla, DBA

Professorial Lecturer


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Labor Market


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Factors of production

are the inputs used to produce

goods and services.

Labor, land, and capital are

the three most important

factors of production


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The Demand for Labor

Governed by the forces of

supply and demand.

Labor demand is a deriveddemand


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The Competitive Profit-Maximizing Firm

firm iscompetitive

firm is profitmaximizing


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The Production Function andthe Marginal Product of Labor

Firm must consider how the

size of its workforce affects the

amount of output produced


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Definition of terms

Production function describes therelationship between the quantity of theinputs used in production and thequantity of output from production.

Marginal product of labor increase inthe amount of output from an additionalunit of labor.

Diminishing marginal product theproperty whereby the marginal product ofan input declines as the quantity of theinput increases


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The Value of the Marginal Productand the Demand for Labor

Profit is total revenue minus total cost, theprofit from an additional worker is theworkers contribution to revenue minus theworkers wage.

Value of the marginal product of any inputis the marginal product of that input multipliedby the market price of the output.

A competitive, profit-maximizing firm hiresworkers up to the point where the value of themarginal product of labor equals the wage.

The value-of-marginal-product curve is thelabor-demand curve for a competitive, profit-maximizing firm.


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What Causes the Labor-

Demand Curve to Shift?

The Output Price

Technological ChangeThe Supply of Other Factors


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The Output Price


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Technological Change

Technological advance typically raisesthe marginal product of labor, which inturn increases the demand for labor andshifts the labor-demand curve to the

right.

It is also possible for technological

change to reduce labor demand. Theinvention of a cheap industrial robot, forinstance, could conceivably reduce themarginal product of labor, shifting the

labor-demand curve to the left.


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The Supply of Other Factors

The quantity available of one

factor of production can affect

the marginal product of otherfactors


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The Supply of Labor


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The Trade-off between Workand Leisure

people face trade-offs

the cost of something is what

you give up to get it


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What Causes the Labor-Supply Curve to Shift?

Changes in Tastes

Changes in AlternativeOpportunities

Immigration


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Equilibrium in the Labor

Market


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Determinants of Wages

The wage adjusts to balancethe supply and demand for

labor.The wage equals the value of

the marginal product of labor


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Equilibrium in a Labor Market

Like all prices, the price of labor(the wage) depends on supply

and demand. Because the

demand curve reflects the value

of the marginal product of labor, in

equilibrium workers receive the

value of their marginal

contribution to the production of

goods and services.


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Shifts in Labor Supply


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Shifts in Labor Demand


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Equilibrium in the Markets forLand and Capital

Purchase priceof land or

capital is the price a person

pays to own that factor ofproductionindefinitely.

Rental priceis the price aperson pays to use that factor

for a limited period of time.


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The Markets for Land andCapital

Supply and demand determine

the compensation paid to the

owners of land, as shown in panel(a), and the compensation paid to

the owners of capital, as shown in

panel (b). The demand for eachfactor, in turn, depends on the

value of the marginal product of

that factor.


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Unemployment


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Basic of Labor

The unemployment rate is the ratioof the number of people

unemployed to the total number of

people in the labor force.

Natural rate of unemploymentrefers to

the amount of unemployment that theeconomy normally experiences.


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Two categories of

unemployment

Long-run problem

Short-run problem


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Kinds of Unemployment

Cyclical unemployment

Frictional unemployment

Structural unemployment

How Is Unemployment


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How Is UnemploymentMeasured?

Labor force as the sum of the employedand the unemployed:

Labor force = Number of employed +

Number of unemployed.

Unemployment rate as the percentage of

the labor force that is unemployed:

Unemployment rate = No. of unemployed /

Labor Force x 100


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Reason for unemployment

Job Search

Minimum-Wage Laws

Unions and CollectiveBargaining

The Theory of Efficiency Wages


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Minimum-Wage Laws


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Unions and Collective Bargaining

A union is a type of cartel. Like anycartel, a union is a group of sellersacting together in the hope of exertingtheir joint market power.

Collective bargaining. the processby which unions and firms agree on

the terms of employment Strike the organized withdrawalof

labor from a firm by a union.


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Are Unions Good or Bad for the Economy?

When unions raise wages above thelevel that would prevail in competitive

markets, they reduce the quantity of

labor demanded, cause some workersto be unemployed, and reduce the

wages in the rest of the economy.

Necessary antidote to the market

power of the firms that hire workers.

Unions are important for helping firms

respond efficiently to workers

concerns.

The Theory of Efficiency


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The Theory of EfficiencyWages

Efficiency wages above-equilibrium wages paid by firms to

increase worker productivity.

Therefore, it may be profitable forfirms to keep wages high even in

the presence of a surplus of labor.


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Types of Efficiency Wage

Theory

Worker Health

Worker TurnoverWorker Quality

Worker Effort


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Thank You!

Documents

Labor Market and Unemployment