2
PERSONNEL ECONOMICS
Labour economics can be simply defined as the economic analysis of labour market, where as,
business dictionary1 illustrates labour market as (usually) an informal market where workers find
paying work, employers find willing workers, and where wage rates are determined.
www.businessdictionary.com
Campbell R. McConnell, Stanley L. Brue, David MacPherson (2005), Contemporary Labor Economics
They also generate incentives for labor mobility and migration. Macroeconomics stresses the
aggregative aspects of labor markets and , in particular, labor productivity, labor share of national
income, the overall level of employment, and the impact of wage upon the price level. The above
diagram3 shows the relationship among various contents of labor economics.
Campbell R. McConnell, Stanley L. Brue, David MacPherson (2005), Contemporary Labor Economics
2. Like capital,
labor is a flow of
services attached
to a stock of
equipment.
-Slavery is prohibited
-For various reasons, people cant
sell shares in
themselves, for example to
finance education
-Workers are differentiated by type
of skill, amount of skill,
demographic characteristics.
4. Labor is a very
heterogeneous
commodity
5. The quality of labor
services being
supplied is often hard
to measure.
6. Sometimes the
demanders and/or
suppliers of labor
have considerable
monopoly power.
7. Labor markets are
highly regulated;
the exchange of labor
is both
highly taxed and
subsidized
Consequences
-income effects work in different ways
for labor than other goods; perverse
responses like backward-bending
labor supply are more likely
-the demand for labor is a derived
demand, from the demand firms face
for their products
-the stock must be produced and
maintained: education, training are
needed.
-in most cases, delivery of the flow
requires physical presence: quality of
the work environment matters
-borrowing constraints may matter for
human capital investment (education)
-human capital investment is riskier
than physical capital investment
because it is non-diversifiable
-a wide variety of prices and market
conditions for different labor services
can coexist. This gives rise to a
distribution of earnings.
-compensation and incentive systems
need to be designed appropriately
-use monopoly/monopsony and search
theory to study these markets
All these distinguishable characteristics of labor and enormous importance of labor market create
the scope of accommodating the labor related economic discussion into a separate sub-discipline of
economics i.e, labor economics.