1

The labor market

Labor Supply– Workers

Labor Demand– Firms

Market Clearing?– Full employment

2

Characteristics or modes of mobilization of labor force

Non-Commodity Forced -> Slave Free

– Household– Militant

Wage earner– Civil servant– House helpers

Commodity Prisoners Free

– Self employed – informal sector– Peasants

Wage earner– private firms

3

Structure of labor market

U n de r th e leg a l a ge

F o rm al in fo rm a l

F u ll t im e e m p lo yed

u n vo lu n ta ry vo lun ta ry

u n de re m p lo yed

E m plo yedR a te o f E m plo ym e nt

U n e m p lo yedR a te o f U n e m p lo ym e nt

E co no m ica ly A c tive P o p u la tionR a te o f P a rtic ipa tion

In a ctive P op u la tion

B e tw ee n 1 5 a n d 65 O ver the leg a l a ge

T o ta l P op u la tion

4

Structure of Labor Market

0

50000

100000

150000

200000

250000

300000

350000

Total Age Activity Employment Type ofEmployment

Under Legal age

active

Inactive

Employed

Unemployed

5

Labor SupplyPeople in the labor force

Economically Active Population “EAP”– civilian population with or without a job

that have been looking for one in a period of time before the survey (BLS last 4 weeks)

6

People not in the labor force

Participating as students in the education system

Unpaid household work Retired or with pensions For health reasons Volunteer in community services

7

Research questions on the labor supply

Who is in the labor market? Who is out of the labor market?

– Age

– Gender

– Position in the household

– Location

8

Why the participation rate changes overtime?

Cultural factors– women in the labor market

– scholarships and school retention

– more years of study Discouraged workers effect Additional worker effect

9

Some participation rates in the US labor market

0

10

20

30

40

50

60

70

80

90

Total 16-19 20-24 25-54 55 /older

1980

1990

2000

10

Differences in participation rate according to gender

40

50

60

70

80

90

100

Male 16-24 Female16.24 Male 25-54 Female 25-54

80

90

0

11

Participation rate according to race

6061626364656667686970

White Black Asian Hispanic

1980

1990

2000

12

Participation rate according race and gender

0

10

20

30

40

50

60

70

80

90

Whitemale

WhiteFemale

BlackMale

BlackFemale

Hisp.Male

Hisp.Female

1980

1990

2000

13

Civilian population between 16 and up and employed population

115000

120000

125000

130000

135000

140000

145000

92 93 94 95 96 97 98 99 0 1 2

EAP

Employed

14

Research questions on the labor demand

Who has a job?– Gender

– Age

– Qualifications

– Salary/Wage

– Hours of work

– Relation with the owner of the firm

15

Rate of Employmentemp/eap

6060.5

6161.5

6262.5

6363.5

6464.5

65

92 93 94 95 96 97 98 99 0 1 2

16

What means to be employed

Wage earners– a person that at the time of the

survey/census was working with a salary in cash or in kind

– with a job but not working at the time of the survey due to various factors

– members of the army (where not professionals)

17

What means to be employed

Independent workers– Professionals

– Self Employed

– Employers

– Workers without pay

devoting a number of hours to earn money or goods or services

18

Some problems with the estimation of the employment

Underestimates the production for self consumption, especially at rural level

The legal age hides child labor Informal workers above the age of

retirement Seasonal workers not captured by the

survey

19

Research questions on the Labor Demand

Who is unemployed?– Age

– Gender

– Ethnicity

– Duration of unemployment

– Turn over

20

Unemployed and rate of unemployment

0

2000

4000

6000

8000

10000

12000

92 93 94 95 96 97 98 99 0 1 2

0

1

2

3

4

5

6

7

8

# unemployed

Rate of Unemployment

21

Research questions on the Labor Supply

What means to be under employed?– Does she/he wants to work more

hours?

– Social/Demographic considerations

22

What is to be under employed

Open under employment (visible)people working for a salary o independently

involuntary working less than the normal (legal) working hours and willing to do it in the same job or getting an additional one.

Hidden under employment– Low hourly payment according to qualifications

Voluntary under employment

23

Research questions on the labor supply

Who is over employed?– Hours of work

– Social/demographic characteristics

24

Evolution of the civilian population above 16 years old

Evolution of the Civilian Population over 16 years

y = 2352.1x + 139169

R2 = 0.9935

135000

145000

155000

165000

175000

185000

195000

205000

215000

225000

1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

25

Civilian and EAP

y = 2352.1x + 139169

R2 = 0.9935

y = 1918.5x + 83525

R2 = 0.9924

80000

100000

120000

140000

160000

180000

200000

220000

240000

1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002

26

Rate of participation (total)

0

50000

100000

150000

200000

250000

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

56

58

60

62

64

66

68

27

Participation rate accoding to gender

0

10

20

30

40

50

60

70

80

90

Total

Male

Female

28

Evolution of employment and rate of employment (Total)

020000400006000080000

100000120000140000160000

505254565860626466

Employed population Rate of employment

29

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

-15.0% -10.0% -5.0% 0.0% 5.0% 10.0%

Total Male Female Youngsters

30

Evolution of unemployed and unemployment rate

0

2000

4000

6000

8000

10000

12000

0

2

4

6

8

10

12

Unemployed Unemployment rate

31

People not in the labor force

50000

55000

60000

65000

70000

75000

32

People not in the labor force but want a job now

4000

4500

5000

5500

6000

6500

1994 1995 1996 1997 1998 1999 2000 2001 2002

33

Male and Female unemployment

0

2

4

6

8

10

12

Male Female

34

Some dynamic analysis of unemployment

0

5

10

15

20

25

0 5 10 15 20 25

Male Female Youngsters

35

Changes in labor participation

It is difficult to define a single labor supply function

For adult males participation is a function of the demographic growth

For adult females it is a function of the income of the household (expresed on the income of the HHH, plus a trend that reflects cultural factors

Additonal workers are function of what happen with the other two.

36

Labor supply functions

Male participation– f(pop.growth)

Female participation– f(wages, prime worker unemp, pw Y)

Youth participation– f(pw unemp, pw Y, Female emp.)

37

Some findings

Male participation have been declining over time in relative terms

Female participation, excluded the growing trend, tend to be counter cyclical if employment represents the cycle.

Youth have a similar behaviour to females

38

Some findings

In the US, female participation can have an U shaped behavior, since wage increases may induce it.

With youngsters the trend is less clear

39

How may an ELR program affect labor supply

Depends on the ELR benefit– If it is high enough to support a family

there should be no changes, unless the discouraged effect was high before the ELR

– If it is not enough the effect can be a sudden increase in the rate of participation of additional workers

40

Other effects of ELR on labor supply

If schooling is a complementary part of ELR (scholarships for youngsters) the rate of participation could decrease.

If childcare is considered and ELR activity, rate of participation may decrease

41

The Labor Demand

Depends mainly on the level of economic activity (GDP growth) and labor costs relative to the price of capital goods– emp = f( GDP, w/k)

The employment to GDP elasticity varies according to the business cycle

42

Labor Demand

Studies all over the world have found that price elasticity of labor is very low, ranging from 0.15 to 0.45 in most of the cases

43

The need to work with different labor markets

In countries with clear formal and informal sectors, the demand for labor should be taken into account in a different way.

Informal markets are more wage sensitive than the rest.

Informal markets are a way to escape “stickiness” of unionized wages