Learning Labour Economics

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Contemporary Labour Economics

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Labour Economics

 

Rationale

 

 

In classical economics and all micro-economics labour (or labor) is a measure of the work done by human beings and is one of three factors of production, the others being land and capital. There are macro-economic system theories which have created a concept called human capital (referring to the skills that workers possess, not necessarily their actual work), although there are also counterposing macro-economic system theories that think human capital is a contradiction in terms.

 

Labour Market Failure

 

 

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

 

Economies by region

 

In economics, 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. There are theories which have developed a concept called human capital (referring to the skills that workers possess, not necessarily their actual work), although there are also counter posing macro-economic system theories that think human capital is a contradiction in terms.

 

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Labour Market

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Labour market flexibility refers to the speed with which labour markets adapt to fluctuations and changes in society, the economy or production.

 

 

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Jobs for Immigrants

 

The quarterly CIPD/KPMG Labour Market Outlook aims to offer an early indication of future changes to the labour market around recruitment, redundancy, migration and pay intentions.

The latest report indicates that the employment recovery signalled in the recent official unemployment statistics may continue into the fourth quarter of 2010. On the upside, the number of employers planning to make redundancies has eased. On the downside, recruitment intentions have edged down since the summer report.

This survey is part of the CIPD Outlook series, which also includes Employee Outlook and HR Outlook.

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Determinants of labour market flexibility

 

 

The Theory of Individual Labour Supply. Population, Participation Rates, and Hours of Work

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Labour Market

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Welfare Economics is a branch of economics that uses microeconomic techniques to simultaneously determine the allocational efficiency of a macroeconomy and the income distribution consequences associated with it. It attempts to maximize the level of social welfare by examining the economic activities of the individuals that comprise society.

Welfare economics is concerned with the welfare of individuals, as opposed to groups, communities, or societies because it assumes that the individual is the basic unit of measurement. It also assumes that individuals are the best judges of their own welfare, that people prefer greater welfare to less welfare, and that welfare can be adequately measured either in monetary terms or as a relative preference.

Social welfare refers to the overall utilitarian state of society. It is often defined as the summation of the welfare of all the individuals in the society. Welfare can be measured either cardinally in terms of dollars or "utils", or measured ordinally in terms of relative utility. The cardinal method is seldom used today because of aggregation problems that make the accuracy of the method doubtful, as well as strong underlying assumptions.

There are two sides to welfare economics: economic efficiency and income distribution. Economic efficiency is largely positive and deals with the "size of the pie". Income distribution is much more normative and deals with "dividing up the pie".

 

 

See also

Backward Bending Supply of Labour Curve

 

Case Study

 

Classroom

Image: Teaching is not a profession that attracts graduates in the way it used to. Does the labour market work effectively for teachers? Title: Classical School Is Educational Experiment. Copyright: Getty Images, available from Education Image Gallery

 

 

Classroom

Image: Filling teaching vacancies in some schools and in some areas of the country is not easy - should the government interfere with the labour market to seek to correct the 'market failure'? Copyright: Tim & Annette

 

Related Articles

More money for 'super teachers'? - from the BBC (http://news.bbc.co.uk/1/hi/education/3686844.stm)

Report from the Education Select Committee of the House of Commons (http://www.parliament.the-stationery-    office.co.uk/pa/cm200304/cmselect/cmeduski/1057/105703.htm)

 

 

Labour Quality: Investing in Human Capital. The Demand for Labour

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Human Capital is a way of defining and categorizing peoples' skills and abilities as used in employment and as they otherwise contribute to the economy. Many early economic theories refer to it simply as labour, one of three factors of production, and consider it to be a commodity -- homogeneous and easily interchangeable. Other conceptions of labor are more sophisticated.

 

 

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Human Capital Centre of Excellence

 

 

DOI Mission

 

Wage Determination and the Allocation of Labour. Alternative Pay Schemes and Labour Efficiency. The Wage Structure

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A wage is a compensation, usually financial, received by workers in exchange for their labor.

Compensation in terms of wages is given to workers and compensation in terms of salary is given to employees. Compensation is a monetary benefit given to employees in return for the services provided by them.

 

Wage Determination in Competitive Markets

 

 

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Labour efficiency reduces production costs

Labour is a big issue not just because of cost but also because of the difficulty in attracting and keeping good staff, according to Ian Powell, director of The Dairy Group. "If your systems are efficient, work will be more enjoyable, existing staff will be happier and your business will be able to attract good, new recruits," he says.

 

Measurement is Management

An alternative approach measures labour efficiency in number of labour hours for every cow a year and this can help identify areas for improvement.

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Individual Wage and Salary Determination

From the viewpoint of the employee, the end product of any compensation program is a paycheck. The decisions regarding the type of salary administration and/or structure system to be used do not, by themselves, deliver a paycheck to the employee. The wage determination must be personalized by making a further set of decisions.

The first compensation decision, the wage level, is an external organizational decision that determines the organization's competitive posture toward its human resources [Chapter 8].

The second major compensation decision is an internal organizational decision involving the structuring of the jobs within the organization [Chapter 11]. Putting these two decisions together in a wage structure provides the wage, or range of wages, that the organization perceives as equitable for each of its jobs [Chapter 12].

Although pay rates are determined for jobs, it is people who receive paychecks. The next decision to be made, then, is whether all people on a particular job are to receive the same pay or different pay; and if different, on what basis and how? These are not trivial questions.

Almost all workers are paid through systems that provide for variable payment for their jobs. Such systems reflect the realization by management and employees that it is important to reward more than just minimal performance on the job. Thus management seeks to reward performance through merit-based and incentive pay systems, while employees and their unions seek to have learning, proficiency and seniority rewarded.

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 Parts of a wage structure

 

 

Mobility, Migration, and Efficiency

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Labor mobility or worker mobility is the socioeconomic ease with which an individual or groups of individuals who are currently receiving remuneration in the form of wages can take advantage of various economic opportunities.

Worker mobility is best gauged by the lack of impediments to such mobility. Impediments to mobility are easily divided into two distinct classes with one being personal and the other being systemic. Personal impediments include physical location, and physical and mental ability. The systemic impediments include educational opportunities as well as various laws and political contrivances and even barriers and hurdles arising from historical happenstance.

Increasing and maintaining a high level of labor mobility allows a more efficient allocation of resources.

 

 

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Barriers to labour mobility in Europe

 

 

Labour Unions and Collective Bargaining. The Economic Impact of Unions

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A trade union (British English) or labor union (American English) is an organization of workers that have banded together to achieve common goals such as better working conditions. The trade union, through its leadership, bargains with the employer on behalf of union members (rank and file[1] members) and negotiates labour contracts (collective bargaining) with employers. This may include the negotiation of wages, work rules, complaint procedures, rules governing hiring, firing and promotion of workers, benefits, workplace safety and policies. The agreements negotiated by the union leaders are binding on the rank and file members and the employer and in some cases on other non-member workers.

Originating in Europe, trade unions became popular in many countries during the Industrial Revolution, when the lack of skill necessary to perform most jobs shifted employment bargaining power almost completely to the employers' side, causing many workers to be mistreated and underpaid. Trade union organizations may be composed of individual workers, professionals, past workers, or the unemployed. The most common, but by no means only, purpose of these organizations is "maintaining or improving the conditions of their employment".[2]

Over the last three hundred years, many trade unions have developed into a number of forms, influenced by differing political objectives. Activities of trade unions vary, but may include:

Provision of benefits to members: Early trade unions, like Friendly Societies, often provided a range of benefits to insure members against unemployment, ill health, old age and funeral expenses. In many developed countries, these functions have been assumed by the state; however, the provision of professional training, legal advice and representation for members is still an important benefit of trade union membership.

Collective bargaining: Where trade unions are able to operate openly and are recognized by employers, they may negotiate with employers over wages and working conditions.

Industrial action: Trade unions may enforce strikes or resistance to lockouts in furtherance of particular goals.

Political activity: Trade unions may promote legislation favorable to the interests of their members or workers as a whole. To this end they may pursue campaigns, undertake lobbying, or financially support individual candidates or parties (such as the Labour Party in Britain) for public office.

 

 

See also

Demonstrators surrounded by soldiers during the Lawrence textile strike in 1912.

 

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Collective bargaining is a process of voluntary negotiation between employers and trade unions aimed at reaching agreements which regulate working conditions. Collective agreements usually set out wage scales, working hours, training, health and safety, overtime, grievance mechanisms and rights to participate in workplace or company affairs.[1]

 

The Legal and Institutional Framework for Salary Determination 

 

The union may negotiate with a single employer (who is typically representing a company's shareholders) or may negotiate with a federation of businesses, depending on the country, to reach an industry wide agreement. A collective agreement functions as a labor contract between an employer and one or more unions. Collective bargaining consists of the process of negotiation between representatives of a union and employers (generally represented by management, in some countries[which?] by an employers' organization) in respect of the terms and conditions of employment of employees, such as wages, hours of work, working conditions and grievance-procedures, and about the rights and responsibilities of trade unions. The parties often refer to the result of the negotiation as a collective bargaining agreement (CBA) or as a collective employment agreement (CEA).

 

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Government and the Labour Market: Employment, Expenditures, and Taxation. Government and the Labour Market: Legislation and Regulation

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Influences on the Labour Market

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Influences on the Labour Market: Equal Pay

 

Pay Ratio

 

Graph: Ratio of women's to men's pay: April 1986 to April 2003.
Source: Office for National Statistics (Crown copyright material
is reproduced with the permission of the Controller of HMSO and
the Queen's Printer for Scotland.)

 

 

Labour Market Discrimination

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What is labour market discrimination?

Labour Market - Discrimination

Employers may not treat workers, be they actual or potential employees in the same way – in which case discrimination is said to occur. It is a possible cause of market failure and we consider different aspects of labour market discrimination in this note

What is discrimination?

Nobel-prize winning economist Kenneth Arrowhas defined discrimination as “the valuation in the market place of personal characteristics of the worker that are unrelated to worker productivity”. These personal characteristics may be sex, race, age, national origin or sexual preference.

Discrimination is a cause of labour market failure and a source of inequity in the distribution of income and wealth and it is usually subject to government intervention e.g. through regulation and legislation. Discriminatory treatment of minority groups leads to lower wages and reduced employment opportunities, including less training and fewer promotions. The result is that groups subject to discrimination earn less than they would and suffer a fall in relative living standards.

 

 

Theory of labour market discrimination

Why does discrimination occur in the labour market?

The 'Taste' Model (Gary Becker) - Discrimination arises here because employers and workers have a  distaste for working with people from different ethnic backgrounds or final customers dislike buying goods from salespeople from different races i.e. people prefer to associate with others from their own group. They are willing to pay a price to avoid contact with other groups. With reference to race, this is equivalent to racial prejudice.

Employer ignorance – Discrimination arises because employers are unable to directly observe the productive ability of individuals and therefore easily observable characteristics such as gender or race may be used as proxies – the employer through ignorance or prejudice assumes that certain groups of workers are less productive than others and is therefore less willing to employ them, or pay them a wage or salary that fairly reflects their productivity, experience and applicability for a particular job.

Occupational crowding effects – Females and minorities may be crowded into lower paying occupations

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Union Membership

Earnings by Race: 2000

Job Search: External and Internal. The Distribution of Personal Earnings

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Readings

Compensation of Employees (CE) is a statistical term used in national accounts, Balance of Payments statistics and sometimes in corporate accounts as well. It refers basically to the total gross (pre-tax) wages paid by employers to employees for work done in an accounting period, such as a quarter or a year.

 

Employees' Compensation & Employees' Compensation as a Percentage of GDP

 

However, in reality, the aggregate includes more than just gross wages, at least in national accounts and balance of payments statistics. The reason is that in these accounts, CE is defined as "the total remuneration, in cash or in kind, payable by an enterprise to an employee in return for work done by the latter during the accounting period".

It represents effectively a total labour cost to an employer, paid from the gross revenues or the capital of an enterprise.Compensation of employees is accounted for on an accrual basis; i.e., it is measured by the value of the remuneration in cash or in kind which an employee becomes entitled to receive from an employer in respect of work done, during the relevant accounting period - whether paid in advance, simultaneously, or in arrears of the work itself.

This contrasts with other inputs to production, which are to be valued at the point when they are actually used.For statistical purposes, the relationship of employer to employee exists, when there is an agreement, formal or informal, between an enterprise and a person, normally entered into voluntarily by both parties, whereby the person works for the enterprise, in return for remuneration in cash or in kind.

The remuneration is normally based on either the time spent at work, or some other objective indicator of the amount of work done.For social accounting purposes, CE is considered as a component of the value of net output or value added (as factor income). The aim is not to measure income actually received by workers, but the value which labour contributes to net output along with other factors of production.

The underlying idea is that the value of net output equals the factor incomes that it generates. For this reason, some types of remuneration received by employees are either included or excluded, because they are regarded as either related or unrelated to production or to the value of new output.In different countries, what is actually included and excluded in CE may differ somewhat.

The reason is that the way in which workers are compensated for their labour may be somewhat different in different types of economies. For example, in some countries workers get substantial payments "in kind", in others they don't. Systems of social insurance also differ between countries, and some countries have little social insurance. One has to keep this in mind when comparing CE magnitudes for different countries.

 

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Labour Productivity: Wages, Prices, and Employment. Employment and Unemployment

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Wage Labour is the socioeconomic relationship between a worker and an employer in which the worker sells their labour under a contract (employment), and the employer buys it, often in a labour market. The products of labour become the employer's property. A wage labourer is a person whose primary means of income is to sell labour in this way.

 

Rural institutions, agricultural development and pro-poor economic growth

 

Wage labour has existed in one form or another for thousands of years in many different kinds of societies. However, under capitalism it transforms more and more labour into wage labour, so that wage labour becomes the main source of income for most people.The phrase is also sometimes used to mean the labour done for an employer in exchange for a wage.

 

See also

 

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Employment is a contract between two parties, one being the employer and the other being the employee. An employee may be defined as: "A person in the service of another under any contract of hire, express or implied, oral or written, where the employer has the power or right to control and direct the employee in the material details of how the work is to be performed." Black's Law Dictionary page 471 (5th ed. 1979).

 

 

In a commercial setting, the employer conceives of a productive activity, generally with the intention of creating profits, and the employee contributes labour to the enterprise, usually in return for payment of wages.

 

Unemployment Rate Climbs to 9.8%

 

In economics, a person willing to work at a prevailing wage rate yet is unable to find a paying job is considered to be unemployed. The unemployment rate is the number of unemployed workers divided by the total civilian labor force, which includes both the unemployed and those with jobs (all those willing and able to work for pay). In practice, measuring the number of unemployed workers actually seeking work is notoriously difficult, particularly those whose unemployment benefits have expired before finding work. There are several different methods for measuring the number of unemployed workers, each with its own biases, making comparisons between methods difficult.The history of unemployment is the history of industrialization. It was not considered an issue in rural areas, despite the "disguised unemployment" of rural laborers having little to do, especially in conditions of overpopulation.The terms unemployment and unemployed are sometimes used to refer to other inputs to production that are not being fully used — for example, unemployed capital goods.

 

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Activity

 

Macroeconomic Targets in the UK

 

Governments are keen to avoid high unemployment for many reasons - not least the potential for social unrest. The Greater London Council puts up welcome banners as the People's March for Jobs reaches London after 28 days walk from Liverpool, 1981. Title: Jobs March. Copyright: Getty Images, available from Education Image Gallery

 

 

Recommended Texts

 

Contemporary Labour Economics

Contemporary Labor Economics,
7th EditionCampbell R McConnell, University of Nebraska, Emeritus 
Stanley L Brue, PACIFIC LUTHERAN UNIVERSITY 
David Macpherson, FLORIDA STATE U-TALLAHASSEE©2006, ISBN 0072978600

 

Check the availability and buy your books from our Bookshop.

 

 

Labour Economics

Labour Economics
Pierre Cahuc and André Zylberberg

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Resources

 

Labour shortages in a recession

 

 

 

Labour Economics Gateway

 

Economic Perspectives Economic Perspectives