LABOR MARKET AND UNEMPLOYMENT

Reported by: Jhoanna Mary E. Pescasio MBA Student Ariel M. Plantilla, DBA Professorial Lecturer

Labor Market

Factors of production
are

the inputs used to produce goods and services.

Labor,

land, and capital are the three most important factors of production

The Demand for Labor

Governed

by the forces of supply and demand. Labor demand is a derived demand

The Competitive ProfitMaximizing Firm

firm is competitive

firm is profit maximizing

The Production Function and the Marginal Product of Labor

Firm

must consider how the size of its workforce affects the amount of output produced

Definition of terms

Production function describes the relationship between the quantity of the inputs used in production and the quantity of output from production. Marginal product of labor increase in the amount of output from an additional unit of labor. Diminishing marginal product the property whereby the marginal product of an input declines as the quantity of the input increases

The Value of the Marginal Product and the Demand for Labor
Profit is total revenue minus total cost, the profit from an additional worker is the workers contribution to revenue minus the workers wage. Value of the marginal product of any input is the marginal product of that input multiplied by the market price of the output. A competitive, profit-maximizing firm hires workers up to the point where the value of the marginal product of labor equals the wage. The value-of-marginal-product curve is the labor-demand curve for a competitive, profitmaximizing firm.

What Causes the LaborDemand Curve to Shift?

The

Output Price Technological Change The Supply of Other Factors

The Output Price

Technological Change

Technological advance typically raises the marginal product of labor, which in turn increases the demand for labor and shifts the labor-demand curve to the right. It is also possible for technological change to reduce labor demand. The invention of a cheap industrial robot, for instance, could conceivably reduce the marginal product of labor, shifting the labor-demand curve to the left.

The Supply of Other Factors

The

quantity available of one factor of production can affect the marginal product of other factors

The Supply of Labor

The Trade-off between Work and Leisure

people

face trade-offs the cost of something is what you give up to get it

What Causes the LaborSupply Curve to Shift?

Changes

in Tastes Changes in Alternative Opportunities Immigration

Equilibrium in the Labor Market

Determinants of Wages
The

wage adjusts to balance the supply and demand for labor. The wage equals the value of the marginal product of labor

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.

Shifts in Labor Supply

Shifts in Labor Demand

Equilibrium in the Markets for Land and Capital

Purchase price of land or capital is the price a person pays to own that factor of production indefinitely. Rental price is the price a person pays to use that factor for a limited period of time.

The Markets for Land and Capital

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 each factor, in turn, depends on the value of the marginal product of that factor.

Unemployment

Basic of Labor

The unemployment rate is the ratio of the number of people unemployed to the total number of people in the labor force. Natural rate of unemployment refers to the amount of unemployment that the economy normally experiences.

Two categories of unemployment

Long-run

problem Short-run problem

Kinds of Unemployment
Cyclical

unemployment Frictional unemployment Structural unemployment

How Is Unemployment Measured?

Labor force as the sum of the employed and 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

Reason for unemployment

Job

Search Minimum-Wage Laws Unions and Collective Bargaining The Theory of Efficiency Wages

Minimum-Wage Laws

Unions and Collective Bargaining

A union is a type of cartel. Like any cartel, a union is a group of sellers acting together in the hope of exerting their joint market power.

Collective bargaining. the process by which unions and firms agree on the terms of employment Strike the organized withdrawal of labor from a firm by a union.

Are Unions Good or Bad for the Economy?

When unions raise wages above the level that would prevail in competitive markets, they reduce the quantity of labor demanded, cause some workers to 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 Wages

Efficiency

wages aboveequilibrium wages paid by firms to increase worker productivity. Therefore, it may be profitable for firms to keep wages high even in the presence of a surplus of labor.

Types of Efficiency Wage Theory

Worker

Health Worker Turnover Worker Quality Worker Effort

Thank You!