Laranang, Russell John B.

Cpe-2
ECONOMI CS OF LABOR MARKETS
There are three main groups of actors or participants in the labor market: individuals, firms (or
employers), and the government
Individuals make labor market decisions concerning:
whether and when to enter the labor force,
how much education, training and job search to undertake,
what type of work (which occupation and industry),
how many hours to work each week (and weeks per year),
what wage, or wage increase, to demand,
whether to quit one's current job and look for another job, possibly in another region,
industry, or occupation,
whether to join a union or employee association,
when to retire
Firms make labor market decisions concerning:
how many workers to hire and how many hours of work to require,
what type of worker to hire (what skills are required)
what wages and fringe benefits to pay,
when to lay-off employees and perhaps close a plant,
what type of work can be subcontracted out,
how to design an effective pension and retirement policy
Governments set various policies that have direct implications for the labour market decisions of
individuals and firms:
human rights and anti-discrimination laws
employment standards and laws concerning minimum wages, hours of work and
overtime, maternity and paternity leave,
occupational health and safety laws, and workers compensation
providing subsidized university/college tuition and public training programs
labor relations laws regulating the collective bargaining process
(un)employment insurance and income maintenance (social assistance) policies
public pensions
providing jobs in the public sector
Subject Matter of Labor Market Economics
-Labor market economics involves analyzing the determinants of the various dimensions
of labor supply and demand, which interact to determine wages, employment and unemployment
-There are many dimensions to labor supply, including demographics (the effects of a
baby boom), immigration and emigration policies (perhaps a brain drain?), the labor force
participation decision, the hours of work decision (including overtime and moonlighting),
education and training (human capital decisions), and the disincentive effects of income
maintenance and unemployment insurance policies
-Labor demand focuses on how firms vary their demand for labor in response to changes
in the wage rate and other costs, including fringe benefits, legislatively imposed costs, and the
quasi-fixed costs associated with hiring and training workers
-Since labor demand is a derived demand (derived from the demand for the firm's
output), it is also influenced by factors such as free trade, global competition and technological
change
-Labor market outcomes are also influenced by the type of market structure (the degree of
competition), union collective bargaining and various government laws (such as minimum wage
laws)
-Labor market economics also studies various wage structures including occupational,
industrial and regional wage differentials, union/non-union wage differentials, and male/female
wage differentials (the issue of sex discrimination in the labor market)
Labor Demand
1. Factors that can increase or decrease labor demand include changes in the output
price, technological change and the supply of other production inputs.
2. Technological improvement can bring about an increase in the marginal product
of labor, which in turn increases the firm's demand for labor.
3. Any factor that affects the firm's profit maximization problem will likely change
the amount of labor the firm demands in relation to other inputs

Labor is an input in the production process just as other inputs
Firms are interested in maximizing profit and in so doing generate demand for labor
Factors that can increase or decrease labor demand include changes in the output price,
technological change and the supply of other production inputs.
Technological improvement can bring about an increase in the marginal product of labor,
which in turn increases the firm's demand for labor.
Any factor that affects the firm's profit maximization problem will likely change the
amount of labor the firm demands in relation to other inputs.