AUT UNIVERSITY TE WANANGA ARONUI O TAMAKI MAKAU RAU

Human Resource Economics Semester 2 2013

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This paper will concentrate on the following issues: Selection and hiring of workers Workers productivity and the costs and benefits of screening Supervision Workers compensation (wages, other benefits, piece rates) Efficiency wages (Henry Ford) The concept of human capital (relevance of and alternatives to) Training and productivity Workers migration Workers job satisfaction Contemporary issues in the NZ labour market

How will we study it?

Economists place a premium on identifying underlying general principles Economists attempt to identify the foundations of these general principles
We may devote due attention to complex theoretical constructs We will use these general principles and apply them to our topics of interest We will try and solve HRE problems that are of relevance for most businesses (and therefore the economy as a whole) We will do this through interactive discussions We will also develop skills to help present solutions In order to do this well, we will research our topics

Overview of the Labour Market

Labour Force Working Age Population Unemployed Not in labour force Employed

http://www.stats.govt.nz/browse_for_stats/income-andwork/employment_and_unemployment/HouseholdLabourForceSurvey_HOTPMar13qtr.aspx

Participation Rate % 50 Men Women 55 60 65 70 80 85

45

75

Quarter

Total

Data from Statistics NZ, Household Labour Force Survey, March Quarter 2011
1986Q1 1986Q4 1987Q3 1988Q2 1989Q1 1989Q4 1990Q3 1991Q2 1992Q1 1992Q4 1993Q3 1994Q2 1995Q1 1995Q4 1996Q3 1997Q2 1998Q1 1998Q4 1999Q3 2000Q2 2001Q1 2001Q4 2002Q3 2003Q2 2004Q1 2004Q4 2005Q3 2006Q2 2007Q1 2007Q4 2008Q3 2009Q2 2010Q1 2010Q4

Labour force participation rates by gender

Labour Market Scorecard

For a comprehensive summary of the NZ labour market see the Labour Market scorecard produced by the Department of Labour (DoL).

The DoL web-site will give you access to a plethora of statistics, reports and information relevant to this course. You will also find the Department of Statistics web-site useful. http://www.statistics.govt.nz/

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Chapter 1
Introduction to Labor Economics

Introduction to Labor Economics

McGraw-Hill/Irwin

Copyright 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

Why study Labor Economics?

Human resources allocate substantial time and energy to labor markets.
Labor economics studies how labor markets work. Labor economics helps us understand and address many social and economic problems facing modern societies.

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Basics of the Labor Market

Participants are assigned motives:
Workers look for the best job. Firms look for profits. Government uses regulation to achieve goals of public policy.
Minimum wages Occupational safety

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Three Actors
Workers
The most important actor; without workers, there is no labor. Desire to maximize (i.e., to optimize by selecting the best option from available choices).
Supplies more time and effort for higher payoffs, causing an upward sloping labor supply curve.
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Three Actors
Firms
Decide who to hire and fire. Motivated to maximize profits. Relationship between price of labor and the number of workers a firm is willing to hire generates the labor demand curve.

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Three Actors
Government
Imposes taxes, regulations. Provides ground rules that guide exchanges made in labor markets.

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Why Do We Need a Theory?

Explain and understand how labor markets work.
Focus on the essential variables while leaving out other, less crucial, factors. Create a model that helps explain the theory.

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Positive vs. Normative Economics

Positive economics
Addresses the facts Focus on what is Questions answered with the tools of economists

Normative economics
Addresses values Focus on what should be Requires judgments
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Supply and Demand in the Engineering Market

Earnings ($) Labor Supply Curve
50,000

Equilibrium
40,000

30,000

Labor Demand Curve

10,000

20,000

30,000

Employment

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The Alaskan Labor Market and Construction of the Oil Pipeline

Earnings ($) S0

w1

w0

D1

D0

Employment E0 E1

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Wages and Employment in the Alaskan Labor Market, 1968-1983

Employment 250,000 230,000 210,000 190,000 170,000 150,000 130,000 110,000 90,000 70,000 50,000 1968
Employment

Monthly Salary ($) 4,500

4,000

3,500

3,000

2,500
Wage

2,000

1970

1972

1974

1976

1978

1980

1982

1,500 1984

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Summary
Labor economics studies how labor markets work. Models in labor economics typically contain three actors: workers, firms, and governments. A good theory should have realistic assumptions and can be tested with real-world data. The tools of economics are helpful in answering positive questions.

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The Regression Line

Log Wage

Change in log wage

Slope = b a

Change in schooling

Years of Schooling

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Scatter Diagram: Wages and Schooling by Occupation, 2001

4

3.5

Log wage

2.5

2 8 10 12 14 16 18 20 Years of schooling
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Choosing Among Lines Summarizing Trends in the Data

4

B
3.5

Log wage

A C

2.5

2 8 10 12 14 16 18 20 Years of schooling
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The Best-Fit Regression Line

4

3.5

Log wage

2.5

2 8 10 12 14 16 18 20 Years of schooling
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End of Chapter 1