Labour economics is the subfield of economics concerned with the study of labour as an input to economic production. Broadly, it surveys labor markets and the economic decisions of agents (i.e., workers and employers) participating in such markets. Topics of study include the labour supply of workers and how it is affected by variables such as age, education, gender and childbearing, as well as the labour demand by firms searching for different forms of labour as an input in the production of goods and services. Other topics of study in labour economics include schooling and human capital, inequality and discrimination, collective bargaining and trade unions, technological change and unemployment, ownership and monopsony, and public policies such as unemployment benefits, pensions, health care and minimum wages.
Macro and micro analysis of labour markets Labour economics can generally be seen as the application of microeconomic or macroeconomic techniques to the labour market. A general assumption in the microeconomic study of labour markets is that workers – suppliers of labour – make rational choices based on the information that they know regarding wage, desire to provide labour, and desire for leisure, to maximise utility over their lifetime by consuming economic goods, services and leisure. Conversely, economic firms – demanders of labour – seek to maximise profits by hiring these labourers. The labour force (LF) is defined as the number of people of working age, who are either employed or actively looking for work (unemployed). The labour force participation rate (LFPR) is the number of people in the labour force divided by the size of the adult civilian noninstitutional population (or by the population of working age that is not institutionalized), LFPR = LF/Population. The non-labour force includes those who are not looking for work, those who are institutionalized (such as in prisons or psychiatric wards), stay-at-home spouses, children not of working age, and those serving in the military. The unemployment level is defined as the labour force minus the number of people currently employed. The unemployment rate is defined as the level of unemployment divided by the labour force. The employment rate is defined as the number of people currently employed divided by the adult population (or by the population of working age). In these statistics, self-employed people are counted as employed. The labour market has the ability to create a higher derivative efficiency of labour, especially on a national and international level, compared to simpler forms of labour distribution, leading to a higher financial GDP growth and output. An efficient labour market is important for the private sector as it drives up derivative income through the reduction of relative costs of labour. This presupposes that division of labour is used as a method to attain cost efficiency. Variables like employment level, unemployment level, labour force, and unfilled vacancies are called stock variables because they measure a quantity at a point in time. They can be contrasted with flow variables which measure a quantity over a duration of time. Changes in the labour force are due to flow variables such as natural population growth, net immigration, new entrants, and retirements. Changes in unemployment depend on inflows (non-employed people starting to look for jobs and employed people who lose their jobs that are looking for new ones) and outflows (people who find new employment and people who stop looking for employment). When looking at the overall macroeconomy, several types of unemployment have been identified, which can be separated into two categories of natural and unnatural unemployment. Natural Unemployment
Frictional unemployment – This reflects the fact that it takes time for people to find and settle into new jobs that they feel are appropriate for them and their skill set. Technological advancement often reduces frictional unemployment; for example, internet search engines have reduced the cost and time associated with finding work and hiring decisions. Structural unemployment – The number of jobs available in an industry are insufficient to provide jobs to all persons who are interested in working or qualified to work in that industry. This can be due to the changes in industries prevalent in a country or because wages for the industry are too high, causing people to want to supply their labour to that industry. Seasonal unemployment – Unemployment due to seasonal fluctuations of demand for workers across industries, such as in the retail industry after holidays that involve a lot of shopping are over. Natural rate of unemployment (also known as full employment) – This is the summation of frictional and structural unemployment, that excludes cyclical contributions of unemployment (e.g. recessions) and seasonal unemployment. It is the lowest rate of unemployment that a stable economy can expect to achieve, given that some frictional and structural unemployment is inevitable. Economists do not agree on the level of the natural rate, with estimates ranging from 1% to 5%, or on its meaning – some associate it with "non-accelerating inflation". The estimated rate varies between countries and across time. Unnatural Unemployment
Demand deficient unemployment (also known as cyclical unemployment) – Any level of unemployment beyond the natural rate caused by the failure of markets to clear, generally due to insufficient aggregate demand in the economy. During a recession, demand is deficient, causing the underutilisation of inputs (including labour). Aggregate expenditure (AE) can be increased by increasing consumption spending (C), investment spending (I), government spending (G), or increasing exports (X), since AE = C + I + G + X.
Supply and demand
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