Labour economics

Labour economics seeks to understand the functioning and dynamics of the markets for wage labour.

Labour markets or job markets function through the interaction of workers and employers. Labour economics looks at the suppliers of labour services (workers) and the demanders of labour services (employers), and attempts to understand the resulting pattern of wages, employment, and income.

Labour is a measure of the work done by human beings. It is conventionally contrasted with such other factors of production as land and capital. Some theories focus on human capital (referring to the skills that workers possess, not necessarily their actual work).

Macro and micro analysis of labour markets

There are two sides to labour economics. Labour economics can generally be seen as the application of microeconomic or macroeconomic techniques to the labour market. Microeconomic techniques study the role of individuals and individual firms in the labour market. Macroeconomic techniques look at the interrelations between the labour market, the goods market, the money market, and the foreign trade market. It looks at how these interactions influence macro variables such as employment levels, participation rates, aggregate income and gross domestic product.

The macroeconomics of labour markets

Job Advertisement Board in Shenzhen -01
Job advertisement board in Shenzhen.

The labour force is defined as the number of people of working age, who are either employed or actively looking for work. The participation rate 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). The non-labour force includes those who are not looking for work, those who are institutionalised such as in prisons or psychiatric wards, stay-at home spouses, children, 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 skills required in a labor force can vary from individual to individual, as well as from firm to firm. Some firms have specific skills they are interested in, limiting the labour force to certain criteria. A firm requiring specific skills will help determine the size of the market.[1]

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 from the labour force. Changes in unemployment depend on inflows made up of non-employed people starting to look for jobs and of employed people who lose their jobs and look for new ones, and outflows of people who find new employment and of people who stop looking for employment. When looking at the overall macroeconomy, several types of unemployment have been identified, including:

  • Frictional unemployment – This reflects the fact that it takes time for people to find and settle into new jobs. Technological advancement often reduces frictional unemployment; for example, internet search engines have reduced the cost and time associated with locating employment or personnel selection.
  • Structural unemployment – This reflects a mismatch between the skills and other attributes of the labour force and those demanded by employers. Rapid industry changes of a technical and/or economic nature will usually increase levels of structural unemployment; for example, widespread implementation of new machinery or software will require future employees to be trained in this area before seeking employment. The process of globalization has contributed to structural changes in labour markets.
  • Natural rate of unemployment – This is the summation of frictional and structural unemployment, that excludes cyclical contributions of unemployment (e.g. recessions). 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 from country to country and from time to time.
  • Demand deficient unemployment (also known as cyclical unemployment) – In Keynesian economics, any level of unemployment beyond the natural rate is probably due to insufficient goods demand in the overall economy. During a recession, aggregate expenditure is deficient causing the underutilisation of inputs (including labour). Aggregate expenditure (AE) can be increased, according to Keynes, by increasing consumption spending (C), increasing investment spending (I), increasing government spending (G), or increasing the net of exports minus imports (X−M), since AE = C + I + G + (X−M)

Neoclassical microeconomics of labour markets

Neoclassical economists view the labour market as similar to other markets in that the forces of supply and demand jointly determine price (in this case the wage rate) and quantity (in this case the number of people employed).

However, the labour market differs from other markets (like the markets for goods or the financial market) in several ways. In particular, the labour market may act as a non-clearing market. While according to neoclassical theory most markets quickly attain a point of equilibrium without excess supply or demand, this may not be true of the labour market: it may have a persistent level of unemployment. Contrasting the labour market to other markets also reveals persistent compensating differentials among similar workers.

Models that assume perfect competition in the labour market, as discussed below, conclude that workers earn their marginal product of labour.[2]

Neoclassical microeconomic model – Supply

Tompkins Square Park Central Knoll
The neoclassical model analyzes the trade-off between leisure hours and working hours
RAILROAD WORK CREW IMPROVES THE TRACKS AND BED OF THE ATCHISON, TOPEKA AND SANTA FE RAILROAD NEAR BELLEFONT, KANSAS... - NARA - 556012
Railroad work.

Households are suppliers of labour. In microeconomic theory, people are assumed to be rational and seeking to maximize their utility function. In the labour market model, their utility function expresses trade-offs in preference between leisure time and income from time used for labour. However, they are constrained by the hours available to them.

Let w denote the hourly wage, k denote total hours available for labour and leisure, L denote the chosen number of working hours, π denote income from non-labour sources, and A denote leisure hours chosen. The individual's problem is to maximise utility U, which depends on total income available for spending on consumption and also depends on time spent in leisure, subject to a time constraint, with respect to the choices of labour time and leisure time:

This is shown in the graph below, which illustrates the trade-off between allocating time to leisure activities and allocating it to income-generating activities. The linear constraint indicates that every additional hour of leisure undertaken requires the loss of an hour of labour and thus of the fixed amount of goods that that labour's income could purchase. Individuals must choose how much time to allocate to leisure activities and how much to working. This allocation decision is informed by the indifference curve labelled IC1. The curve indicates the combinations of leisure and work that will give the individual a specific level of utility. The point where the highest indifference curve is just tangent to the constraint line (point A), illustrates the optimum for this supplier of labour services.

If consumption is measured by the value of income obtained, this diagram can be used to show a variety of interesting effects. This is because the absolute value of the slope of the budget constraint is the wage rate. The point of optimisation (point A) reflects the equivalency between the wage rate and the marginal rate of substitution[3] of leisure for income (the absolute value of the slope of the indifference curve). Because the marginal rate of substitution of leisure for income is also the ratio of the marginal utility of leisure (MUL) to the marginal utility of income (MUY), one can conclude:

where Y is total income and the right side is the wage rate.

Effects of a wage increase

If the wage rate increases, this individual's constraint line pivots up from X,Y1 to X,Y2. He/she can now purchase more goods and services. His/her utility will increase from point A on IC1 to point B on IC2. To understand what effect this might have on the decision of how many hours to work, one must look at the income effect and substitution effect.

The wage increase shown in the previous diagram can be decomposed into two separate effects. The pure income effect is shown as the movement from point A to point C in the next diagram. Consumption increases from YA to YC and – since the diagram assumes that leisure is a normal good – leisure time increases from XA to XC. (Employment time decreases by the same amount as leisure increases.)

The Income and Substitution effects of a wage increase

But that is only part of the picture. As the wage rate rises, the worker will substitute away from leisure and into the provision of labour—that is, will work more hours to take advantage of the higher wage rate, or in other words substitute away from leisure because of its higher opportunity cost. This substitution effect is represented by the shift from point C to point B. The net impact of these two effects is shown by the shift from point A to point B. The relative magnitude of the two effects depends on the circumstances. In some cases, such as the one shown, the substitution effect is greater than the income effect (in which case more time will be allocated to working), but in other cases the income effect will be greater than the substitution effect (in which case less time is allocated to working). The intuition behind this latter case is that the individual decides that the higher earnings on the previous amount of labour can be "spent" by purchasing more leisure.

The Labour Supply curve

If the substitution effect is greater than the income effect, an individual's supply of labour services will increase as the wage rate rises, which is represented by a positive slope in the labour supply curve (as at point E in the adjacent diagram, which exhibits a positive wage elasticity). This positive relationship is increasing until point F, beyond which the income effect dominates the substitution effect and the individual starts to reduce the amount of labour hours he supplies (point G) as wage increases; in other words, the wage elasticity is now negative.

The direction of slope may change more than once for some individuals, and the labour supply curve is different for different individuals.

Other variables that affect the labour supply decision, and can be readily incorporated into the model, include taxation, welfare, work environment, and income as a signal of ability or social contribution.

Neoclassical microeconomic model – Demand

A firm's labour demand is based on its marginal physical product of labour (MPPL). This is defined as the additional output (or physical product) that results from an increase of one unit of labour (or from an infinitesimal increase in labour). (See also Production theory basics.)

Labour demand is a derived demand; that is, hiring labour is not desired for its own sake but rather because it aids in producing output, which contributes to an employer's revenue and hence profits. The demand for an additional amount of labour depends on the Marginal Revenue Product (MRP) and the marginal cost (MC) of the worker. With a perfectly competitive goods market, the MRP is calculated by multiplying the price of the end product or service by the Marginal Physical Product of the worker. If the MRP is greater than a firm's Marginal Cost, then the firm will employ the worker since doing so will increase profit. The firm only employs however up to the point where MRP=MC, and not beyond, in neoclassical economic theory.[3]

The MRP of the worker is affected by other inputs to production with which the worker can work (e.g. machinery), often aggregated under the term "capital". It is typical in economic models for greater availability of capital for a firm to increase the MRP of the worker, all else equal. Education and training are counted as "human capital". Since the amount of physical capital affects MRP, and since financial capital flows can affect the amount of physical capital available, MRP and thus wages can be affected by financial capital flows within and between countries, and the degree of capital mobility within and between countries.[4]

According to neoclassical theory, over the relevant range of outputs, the marginal physical product of labour is declining (law of diminishing returns). That is, as more and more units of labour are employed, their additional output begins to decline.

Additionally, although the MRP is a good way of expressing an employer's demand, other factors such as social group formation can the demand, as well as the labor supply. This constantly restructures exactly what a labor market is, and leads way to causing problems for theories of inflation. [5]

Neoclassical microeconomic model – Equilibrium

A Firm's Labour Demand in the Short Run

The marginal revenue product of labour can be used as the demand for labour curve for this firm in the short run. In competitive markets, a firm faces a perfectly elastic supply of labour which corresponds with the wage rate and the marginal resource cost of labour (W = SL = MFCL). In imperfect markets, the diagram would have to be adjusted because MFCL would then be equal to the wage rate divided by marginal costs. Because optimum resource allocation requires that marginal factor costs equal marginal revenue product, this firm would demand L units of labour as shown in the diagram.

The demand for labour of this firm can be summed with the demand for labour of all other firms in the economy to obtain the aggregate demand for labour. Likewise, the supply curves of all the individual workers (mentioned above) can be summed to obtain the aggregate supply of labour. These supply and demand curves can be analysed in the same way as any other industry demand and supply curves to determine equilibrium wage and employment levels.

Wage differences exist, particularly in mixed and fully/partly flexible labour markets. For example, the wages of a doctor and a port cleaner, both employed by the NHS, differ greatly. There are various factors concerning this phenomenon. This includes the MRP of the worker. A doctor's MRP is far greater than that of the port cleaner. In addition, the barriers to becoming a doctor are far greater than that of becoming a port cleaner. To become a doctor takes a lot of education and training which is costly, and only those who excel in academia can succeed in becoming doctors. The port cleaner however requires relatively less training. The supply of doctors is therefore significantly less elastic than that of port cleaners. Demand is also inelastic as there is a high demand for doctors and medical care is a necessity, so the NHS will pay higher wage rates to attract the profession.

Monopsony

Some labour markets have a single employer and thus do not satisfy the perfect competition assumption of the neoclassical model above. The model of a monopsonistic labour market gives a lower quantity of employment and a lower equilibrium wage rate than does the competitive model.

Information approaches

Sabah Sarawak labour advert Kuala Lumpur
An advertisement for labour from Sabah and Sarawak, seen in Jalan Petaling, Kuala Lumpur.

In many real-life situations the assumption of perfect information is unrealistic. An employer does not necessarily know how hard workers are working or how productive they are. This provides an incentive for workers to shirk from providing their full effort – since it is difficult for the employer to identify the hard-working and the shirking employees, there is no incentive to work hard and productivity falls overall, leading to the hiring of more workers and a lower unemployment rate.

One solution used recently – stock options – grants employees the chance to benefit directly from a firm's success. However, this solution has attracted criticism as executives with large stock-option packages have been suspected of acting to over-inflate share values to the detriment of the long-run welfare of the firm. Another solution, foreshadowed by the rise of temporary workers in Japan and the firing of many of these workers in response to the financial crisis of 2008, is more flexible job- contracts and -terms that encourage employees to work less than full-time by partially compensating for the loss of hours, relying on workers to adapt their working time in response to job requirements and economic conditions instead of the employer trying to determine how much work is needed to complete a given task and overestimating.

Another aspect of uncertainty results from the firm's imperfect knowledge about worker ability. If a firm is unsure about a worker's ability, it pays a wage assuming that the worker's ability is the average of similar workers. This wage undercompensates high-ability workers and may drive them away from the labour market. Such a phenomenon, called adverse selection, can sometimes lead to market collapse.[6]

There are many ways to overcome adverse selection in labour market. One important mechanism is called signalling, pioneered by Michael Spence.[7] In his classical paper on job signalling, Spence showed that even if formal education does not increase productivity, high-ability workers may still acquire it just to signal their abilities. Employers can then use education as a signal to infer worker ability and pay higher wages to better-educated workers. It may appear to an external observer that education has raised the marginal product of labour, without this necessarily being true.

Search models

One of the major research achievements of the 1990-2010 period was the development of a framework with dynamic search, matching, and bargaining.[8]

Personnel economics: hiring and incentives

At the micro level, one sub-discipline eliciting increased attention in recent decades is analysis of internal labour markets, that is, within firms (or other organisations), studied in personnel economics from the perspective of personnel management. By contrast, external labour markets "imply that workers move somewhat fluidly between firms and wages are determined by some aggregate process where firms do not have significant discretion over wage setting."[9] The focus is on "how firms establish, maintain, and end employment relationships and on how firms provide incentives to employees," including models and empirical work on incentive systems and as constrained by economic efficiency and risk/incentive tradeoffs relating to personnel compensation.[10]

Criticisms

Many sociologists, political economists, and heterodox economists claim that labour economics tends to lose sight of the complexity of individual employment decisions.[11] These decisions, particularly on the supply side, are often loaded with considerable emotional baggage and a purely numerical analysis can miss important dimensions of the process, such as social benefits of a high income or wage rate regardless of the marginal utility from increased consumption or specific economic goals.

From the perspective of mainstream economics, neoclassical models are not meant to serve as a full description of the psychological and subjective factors that go into a given individual's employment relations, but as a useful approximation of human behaviour in the aggregate, which can be fleshed out further by the use of concepts such as information asymmetry, transaction costs, contract theory etc.

Also missing from most labour market analyses is the role of unpaid labour such as unpaid internships where workers with little or no experience are allowed to work a job without pay so that they can gain experience in a particular profession. Even though this type of labour is unpaid it can nevertheless play an important part in society if not abused by employers. The most dramatic example is child raising. However, over the past 25 years an increasing literature, usually designated as the economics of the family, has sought to study within household decision making, including joint labour supply, fertility, child raising, as well as other areas of what is generally referred to as home production.[12]

Wage slavery

The labour market, as institutionalised under today's market economic systems, has been criticised,[13] especially by both mainstream socialists and anarcho-syndicalists,[14][15][16][17] who utilise the term wage slavery[18][19] as a pejorative for wage labour. Socialists draw parallels between the trade of labour as a commodity and slavery. Cicero is also known to have suggested such parallels.[20]

According to Noam Chomsky, analysis of the psychological implications of wage slavery goes back to the Enlightenment era. In his 1791 book On the Limits of State Action, classical liberal thinker Wilhelm von Humboldt explained how "whatever does not spring from a man's free choice, or is only the result of instruction and guidance, does not enter into his very nature; he does not perform it with truly human energies, but merely with mechanical exactness" and so when the labourer works under external control, "we may admire what he does, but we despise what he is."[21] Both the Milgram and Stanford experiments have been found useful in the psychological study of wage-based workplace relations.[22]

The American philosopher John Dewey posited that until "industrial feudalism" is replaced by "industrial democracy," politics will be "the shadow cast on society by big business".[23] Thomas Ferguson has postulated in his investment theory of party competition that the undemocratic nature of economic institutions under capitalism causes elections to become occasions when blocs of investors coalesce and compete to control the state.[24]

As per anthropologist David Graeber, the earliest wage labour contracts we know about were in fact contracts for the rental of chattel slaves (usually the owner would receive a share of the money, and the slave, another, with which to maintain his or her living expenses.) Such arrangements, according to Graeber, were quite common in New World slavery as well, whether in the United States or Brazil. C. L. R. James argued that most of the techniques of human organisation employed on factory workers during the industrial revolution were first developed on slave plantations.[25]

Additionally, Marxists posit that labour-as-commodity, which is how they regard wage labour,[26] provides an absolutely fundamental point of attack against capitalism.[27] "It can be persuasively argued," noted one concerned philosopher, "that the conception of the worker's labour as a commodity confirms Marx's stigmatisation of the wage system of private capitalism as 'wage-slavery;' that is, as an instrument of the capitalist's for reducing the worker's condition to that of a slave, if not below it."[28]

See also

References

  1. ^ "U-M Weblogin". weblogin.umich.edu. doi:10.1057/978-1-349-95121-5_1213-1. Retrieved 2019-04-23.
  2. ^ Gustav Ranis (February 1997). "The Micro-Economics of Surplus Labor" (PDF). Yale University.
  3. ^ a b Frank, Robert H.; Microeconomics and Behavior. McGraw-Hill/Irwin, 6th Edition: 2006
  4. ^ Hacker, R. Scott (2000). "The Impact of International Capital Mobility on the Volatility of Labour Income". Annals of Regional Science. 34 (2): 157–172. doi:10.1007/s001689900005.
  5. ^ "U-M Weblogin". weblogin.umich.edu. doi:10.1057/978-1-349-95121-5_1213-1. Retrieved 2019-04-23.
  6. ^ De Meza ; Webb, David ; David (March 1990). "Risk, Adverse Selection and Capital Market Failure". The Economic Journal. doi:10.2307/2233604.
  7. ^ Spence, Michael (1973). "Job Market Signaling". Quarterly Journal of Economics. The MIT Press. 87 (3): 355–374. doi:10.2307/1882010. JSTOR 1882010.
  8. ^ 2010 Prize in Economic Sciences in Honor of Alfred Nobel Press Release
  9. ^ Edward P. Lazear and Paul Oyer, 2004. "Internal and External Labor Markets: A Personnel Economics Approach," Labour Economics, 11(5), pp. 527 and 528. [Pp. 527–554.]
       • JEL Classification Codes Guide: M per JEL:M5].
  10. ^ Paul Oyer and Scott Schaefer, 2011. "Personnel Economics: Hiring and Incentives," ch. 20, Handbook of Labor Economics, v. 4B, pp. 1769–1823. Abstract and pre-pub [1].
  11. ^ Teixeira, Pedro N. Jacob Mincer: A Founding Father of Modern Labor Economics - Oxford Scholarship. doi:10.1093/acprof:oso/9780199211319.001.0001.
  12. ^ (Sandiaga S. Unno, Anindya N Bakrie, Rosan Perkasa, Morendy Octora : The Young Strategic Renaissance's In Asia)
  13. ^ Ellerman 1992.
  14. ^ Thompson 1966, p. 599.
  15. ^ Thompson 1966, p. 912.
  16. ^ Ostergaard 1997, p. 133.
  17. ^ Lazonick 1990, p. 37.
  18. ^ "wage slave". merriam-webster.com. Retrieved 4 March 2013.
  19. ^ "wage slave". dictionary.com. Retrieved 4 March 2013.
  20. ^ "...vulgar are the means of livelihood of all hired workmen whom we pay for mere manual labour, not for artistic skill; for in their case the very wage they receive is a pledge of their slavery." – De Officiis [2]
  21. ^ Chomsky 1993, p. 19.
  22. ^ Thye & Lawler 2006.
  23. ^ "As long as politics is the shadow cast on society by big business, the attenuation of the shadow will not change the substance", in "The Need for a New Party" (1931), Later Works 6, p163
  24. ^ Ferguson 1995.
  25. ^ Graeber 2004, p. 37.
  26. ^ Marx 1990, p. 1006: "[L]abour-power, a commodity sold by the worker himself."
  27. ^ Another one, of course, being the capitalists' alleged theft from workers via surplus-value.
  28. ^ Nelson 1995, p. 158. This Marxist objection is what motivated Nelson's essay, which claims that labour is not, in fact, a commodity.

Further reading

Orley C. Ashenfelter and Richard Layard, ed., 1986, v. 1 & 2;
Orley Ashenfelter and David Card, ed., 1999, v. 3A, 3B, and 3C
Orley Ashenfelter and David Card, ed., 2011, v. 4A & 4B.

External links

Economic discrimination

Economic discrimination is discrimination based on economic factors. These factors can include job availability, wages, the prices and/or availability of goods and services, and the amount of capital investment funding available to minorities for business. This can include discrimination against workers, consumers, and minority-owned businesses.

It is not the same as price discrimination, the practice by which monopolists (and to a lesser extent oligopolists and monopolistic competitors) charge different buyers different prices based on their willingness to pay.

Employment-to-population ratio

The Organisation for Economic Co-operation and Development defines the employment rate as the employment-to-population ratio.

This is a statistical ratio that measures the proportion of the country's working age population (statistics are often given for ages 15 to 64) that is employed. This includes people that have stopped looking for work. The International Labour Organization states that a person is considered employed if they have worked at least 1 hour in "gainful" employment in the most recent week.

Exploitation of labour

Exploitation of labour (or labor) is the act of treating one's workers unfairly for one's own benefit. It is a social relationship based on an asymmetry in a power relationship between workers and their employers. When speaking about exploitation, there is a direct affiliation with consumption in social theory and traditionally this would label exploitation as unfairly taking advantage of another person because of his or her inferior position, giving the exploiter the power.

Karl Marx, who is considered the most classical and influential theorist of exploitation, did not share the same traditional account of exploitation. Marx's theory explicitly rejects the moral framing characteristic of the notion of exploitation and restricts the concept to the field of labour relations. In analyzing exploitation, many political economists are often stuck between the explanation of the exploitation of labour given by Marx and Adam Smith.

Factors of production

In economics, factors of production, resources, or inputs are what is used in the production process to produce output—that is, finished goods and services. The utilized amounts of the various inputs determine the quantity of output according to the relationship called the production function. There are three basic resources or factors of production: land, labor, and capital. The factors are also frequently labeled "producer goods or services" to distinguish them from the goods or services purchased by consumers, which are frequently labeled "consumer goods".

There are two types of factors: primary and secondary. The previously mentioned primary factors are land, labor, and capital goods.

Materials and energy are considered secondary factors in classical economics because they are obtained from land, labor, and capital. The primary factors facilitate production but neither becomes part of the product (as with raw materials) nor becomes significantly transformed by the production process (as with fuel used to power machinery). Land includes not only the site of production but also natural resources above or below the soil. Recent usage has distinguished human capital (the stock of knowledge in the labor force) from labor. Entrepreneurship is also sometimes considered a factor of production. Sometimes the overall state of technology is described as a factor of production. The number and definition of factors vary, depending on theoretical purpose, empirical emphasis, or school of economics.

IZA Institute of Labor Economics

The IZA - Institute of Labor Economics (German: Forschungsinstitut zur Zukunft der Arbeit), until 2016 referred to as the Institute of the Study of Labor (IZA), is a private, independent economic research institute and academic network focused on the analysis of global labor markets and headquartered in Bonn, Germany.

Immiseration thesis

In Marxist theory and Marxian economics, the immiseration thesis (also referred to as emiseration thesis) is derived from Karl Marx's analysis of economic development in capitalism, implying that the nature of capitalist production stabilizes real wages, reducing wage growth relative to total value creation in the economy, leading to worsening alienation in the workplace.

The immiseration thesis is related to Marx's analysis of the rising organic composition of capital and reduced demand for labor relative to capital equipment as technology develops.

Labor intensity

Labor intensity is the relative proportion of labor (compared to capital) used in a process. Its inverse is capital intensity.

Labour intensity has been declining since the onset of the industrial revolution in late 1700s, while its inverse, capital intensity, has increased near exponentially since the latter half of the 20th century.

Labor market of Japan

The labor force in Japan numbered 65.9 million people in 2010, which was 59.6% of the population of 15 years old and older, and amongst them, 62.57 million people were employed, whereas 3.34 million people were unemployed which made the unemployment rate 5.1%. The structure of Japan's labor market experienced gradual change in the late 1980s and continued this trend throughout the 1990s. The structure of the labor market is affected by: 1) shrinking population, 2) replacement of postwar baby boom generation, 3) increasing numbers of women in the labor force, and 4) workers' rising education level. Also, increase in numbers of foreign nationals in the labor force is foreseen.

Labour Economics (journal)

Labour Economics is a bimonthly peer-reviewed academic journal covering labor economics. It was established in 1993 and is the official journal of the European Association of Labour Economists. It is published by Elsevier and the editor-in-chief is Arthur van Soest (Tilburg University).

According to the Journal Citation Reports, the journal has a 2016 impact factor of 1.036.

Labour market flexibility

The degree of labour market flexibility is the speed with which labour markets adapt to fluctuations and changes in society, the economy or production.

The most common definition of labour market flexibility has been the neo-liberal definition. This entailed the ease of labour market institutions in enabling labour markets to reach a continuous equilibrium determined by the intersection of the demand and supply curves. In the words of Siebert, labour market institutions were seen to inhibit "the clearing functions of the market by weakening the demand for labor, making it less attractive to hire a worker by explicitly pushing up the wage costs or by introducing a negative shadow price for labor; by distorting the labor supply; and by impairing the equilibrating function of the market mechanism (for instance, by influencing bargaining behavior)."

Labour supply

In mainstream economic theories, the labour supply is the total hours (adjusted for intensity of effort) that workers wish to work at a given real wage rate. It is frequently represented graphically by a labour supply curve, which shows hypothetical wage rates plotted vertically and the amount of labour that an individual or group of individuals is willing to supply at that wage rate plotted horizontally.

Lump of labour fallacy

In economics, the lump of labour fallacy is the misconception that there is a fixed amount of work—a lump of labour—to be done within an economy which can be distributed to create more or fewer jobs. It was considered a fallacy in 1891 by economist David Frederick Schloss, who held that the amount of work is not fixed.The term originated to rebut the idea that reducing the number of hours employees are allowed to labour during the working day would lead to a reduction in unemployment. The term is also commonly used to describe the belief that increasing labour productivity, immigration, or automation causes an increase in unemployment. Whereas some argue immigrants displace a country's workers, others believe this to be a fallacy by arguing that the number of jobs in the economy is not fixed and that immigration increases the size of the economy, thus creating more jobs.The lump of labor fallacy is also known as the lump of jobs fallacy, fallacy of labour scarcity, fixed pie fallacy or the zero-sum fallacy – due to its ties to zero-sum games. The term "fixed pie fallacy" is also used more generally to refer to the idea that there is a fixed amount of wealth in the world.

Matching theory (economics)

In economics, matching theory, also known as search and matching theory, is a mathematical framework attempting to describe the formation of mutually beneficial relationships over time.

Matching theory has been especially influential in labor economics, where it has been used to describe the formation of new jobs, as well as to describe other human relationships like marriage. Matching theory evolved from an earlier framework called 'search theory'. Where search theory studies the microeconomic decision of an individual searcher, matching theory studies the macroeconomic outcome when one or more types of searchers interact. It offers a way of modeling markets in which frictions prevent instantaneous adjustment of the level of economic activity. Among other applications, it has been used as a framework for studying frictional unemployment.

One of the founders of matching theory is Dale T. Mortensen of Northwestern University. A textbook treatment of the matching approach to labor markets is Christopher A. Pissarides' book Equilibrium Unemployment Theory. Mortensen and Pissarides, together with Peter A. Diamond, were awarded the 2010 Nobel Prize in Economics for 'fundamental contributions to search and matching theory'. The 2012 Economic Prize Committee of the Royal Swedish Academy of Sciences was awarded to Alvin E. Roth and Lloyd Shapley for their work on matching theory. Paul Milgrom has also contributed to the field of market design in matching theory.

Means of production

In economics and sociology, the means of production (also called capital goods) are physical and non-financial inputs used in the production of economic value. These include raw materials, facilities, machinery and tools used in the production of goods and services. In the terminology of classical economics, the means of production are the "factors of production" minus financial and human capital.

The social means of production are capital goods and assets that require organized collective labor effort, as opposed to individual effort, to operate on. The ownership and organization of the social means of production is a key factor in categorizing and defining different types of economic systems.

The means of production includes two broad categories of objects: instruments of labor (tools, factories, infrastructure, etc.) and subjects of labor (natural resources and raw materials). People operate on the subjects of labor using the instruments of labor to create a product; or stated another way, labor acting on the means of production creates a good. In an agrarian society the principal means of production is the soil and the shovel. In an industrial society the means of production become social means of production and include factories and mines. In a knowledge economy, computers and networks are means of production. In a broad sense, the "means of production" also includes the "means of distribution" such as stores, the internet and railroads (Infrastructural capital).

Paradox of toil

The paradox of toil is the economic hypothesis that total employment will shrink if everybody wants to work more when "the short-term nominal interest rate is zero and there are

deflationary pressures and output contraction". When wages are pushed down by the simultaneous efforts of everyone in the labor force to work more even at lower wages, with interest rates against the zero bound, demand must fall because the only source of added demand would be added credit to compensate for those lower wages, credit which cannot be made available on any looser terms; this loss of demand leads to loss of jobs.

The belief that there must necessarily be more work available if wages drop is an example of the fallacy of composition.The term was intended to parallel the "paradox of thrift", a concept resurrected by John Maynard Keynes and popularized under that name by Paul Samuelson.

The paradox of toil was proposed by economist Gauti Eggertsson in 2009.

Piece work

Piece work (or piecework) is any type of employment in which a worker is paid a fixed piece rate for each unit produced or action performed regardless of time.

Putting-out system

The putting-out system is a means of subcontracting work. Historically, it was also known as the workshop system and the domestic system. In putting-out, work is contracted by a central agent to subcontractors who complete the work in off-site facilities, either in their own homes or in workshops with multiple craftsmen.

It was used in the English and American textile industries, in shoemaking, lock-making trades, and making parts for small firearms from the Industrial Revolution until the mid-19th century; however, after the invention of the sewing machine in 1846, the system lingered on for the making of ready-made men's clothing.The domestic system was suited to pre-urban times because workers did not have to travel from home to work, which was quite impracticable due to the state of roads and footpaths, and members of the household spent many hours in farm or household tasks. Early factory owners sometimes had to build dormitories to house workers, especially girls and women. Putting-out workers had some flexibility to balance farm and household chores with the putting-out work, this being especially important in winter.

The development of this trend is often considered to be a form of proto-industrialization, and remained prominent until the Industrial Revolution of the 19th century.

At that point, it underwent name and geographical changes. However, bar some technological advancements, the putting-out system has not changed in essential practice. Contemporary examples can be found in China, India, and South America, and are not limited to the textiles industry.

Search theory

In microeconomics, search theory studies buyers or sellers who cannot instantly find a trading partner, and must therefore search for a partner prior to transacting.

Search theory has been influential in many areas of economics. It has been applied in labor economics to analyze frictional unemployment resulting from job hunting by workers. In consumer theory, it has been applied to analyze purchasing decisions. From a worker's perspective, an acceptable job would be one that pays a high wage, one that offers desirable benefits, and/or one that offers pleasant and safe working conditions. From a consumer's perspective, a product worth purchasing would have sufficiently high quality, and be offered at a sufficiently low price. In both cases, whether a given job or product is acceptable depends on the searcher's beliefs about the alternatives available in the market.

More precisely, search theory studies an individual's optimal strategy when choosing from a series of potential opportunities of random quality, under the assumption that delaying choice is costly. Search models illustrate how best to balance the cost of delay against the value of the option to try again. Mathematically, search models are optimal stopping problems.

Macroeconomists have extended search theory by studying general equilibrium models in which one or more types of searchers interact. These macroeconomic theories have been called 'matching theory', or 'search and matching theory'.

Workforce productivity

Workforce productivity is the amount of goods and services that a group of workers produce in a given amount of time. It is one of several types of productivity that economists measure. Workforce productivity, often referred to as labor productivity, is a measure for an organization or company, a process, an industry, or a country.

Workforce productivity is to be distinguished from employee productivity which is a measure employed at individual level based on the assumption that the overall productivity can be broken down to increasingly smaller units until, ultimately, to the individual employee, in order be used for example for the purpose of allocating a benefit or sanction based on individual performance (see also: Vitality curve).

In 2002, the OECD defined it as "the ratio of a volume measure of output to a volume measure of input". Volume measures of output are normally gross domestic product (GDP) or gross value added (GVA), expressed at constant prices i.e. adjusted for inflation. The three most commonly used measures of input are:

hours worked, typically from the OECD Annual National Accounts database

workforce jobs; and

number of people in employment.

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