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2 PERSONNEL ECONOMICS
Labour economics can be simply defined as the economic analysis of labour market, where as, business dictionary1 illustrates labour market as (usually) an informal market where workers find paying work, employers find willing workers, and where wage rates are determined.
www.businessdictionary.com Campbell R. McConnell, Stanley L. Brue, David MacPherson (2005), Contemporary Labor Economics
Distinction of labor and scope of labor economics Labor possess some distinguishable characteristics than those of other goods or services. Labor services are rented, not sold Suppliers of labor care about the way in which the labor is used Labor productivity is affected by pay and working conditions labor supply is affected by Non-monetary aspects (i.e., leisure time)
Distinction of Labor from other Goods and ServicesAspect of Labor 1. Labor is a factor of production, not a final product. Explanations & Examples Unlike most goods which households buy, labor is one of the few goods they sell. Consequences -income effects work in different ways for labor than other goods; perverse responses like backward-bending labor supply are more likely -the demand for labor is a derived demand, from the demand firms face for their products -the stock must be produced and maintained: education, training are needed. -in most cases, delivery of the flow requires physical presence: quality of the work environment matters -borrowing constraints may matter for human capital investment (education) -human capital investment is riskier than physical capital investment because it is non-diversifiable -a wide variety of prices and market conditions for different labor services can coexist. This gives rise to a distribution of earnings. -compensation and incentive systems need to be designed appropriately -use monopoly/monopsony and search theory to study these markets
2. Like capital, labor is a flow of services attached to a stock of equipment. 3. Unlike capital, the stock cannot be bought and sold. 4. Labor is a very heterogeneous commodity 5. The quality of labor services being supplied is often hard to measure. 6. Sometimes the demanders and/or suppliers of labor have considerable monopoly power.
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The stock in this case is the worker and the skills he/she possesses. The flow is the right to use it for a period of time. -Slavery is prohibited -For various reasons, people cant sell shares in themselves, for example to finance education -Workers are differentiated by type of skill, amount of skill, demographic characteristics. -workers may simply shirk -poor management decisions may not be apparent for years -employers associations, company towns, other monopsonists -unions -search costs, relationship-specific skills and bilateral monopoly.
Campbell R. McConnell, Stanley L. Brue, David MacPherson (2005), Contemporary Labor Economics
All these distinguishable characteristics of labor and enormous importance of labor market create the scope of accommodating the labor related economic discussion into a separate sub-discipline of economics i.e, labor economics.