Laborand

Unemployment

Factor of ProductionYOU are labor!!!

You sell your labor (FOP): supply

Firms (business) buys your labor: demand

Productivity and labor:• What is BEST way to increase

productivity???• How are wages (payment for use of labor

FOP) determined???• What happens to wages when firm

profits go up??? Why???

The answer lies in supply/demand schedules!

Supply/Demand for Labor

Price of

Labor

Quantity of Labor

S

D

Supply of Labor: the worker

Demand for Labor: the Firm

Ep

Eq

Market forces determine wages

Natural Market Forces• When nothing interferes, labor is

supplied and demanded at equilibrium• There is no unemployment• Everyone wins

• If something changes naturally (shift in D or S), the market adjusts

Shift in Demand for Labor

Price of

Labor

Quantity of Labor

S

D1

Ep1

Eq1

D2

Ep2

Eq2

Productivity up; firms expand; demand for labor shifts upward; D1 to D2

Natural Market Forces still determine wages

• Demand for labor up• Firms hire more people• Wages increase• Equilibrium still intact!

• Everyone wins!!!

Shift in Supply for Labor

Price of

Labor

Quantity of Labor

S1

D

Ep1

Eq1

Ep2

Eq2

Population up; Supply shifts up; S1 to S2

S2

Natural Market Forces still determine wages

• Supply for labor up (S1-S2)• Quantity demanded goes up (Eq1-Eq2)• Wages decrease (Ep1-Ep2)• Equilibrium still intact!

• Everyone wins!!!

Reality…Reality…• Over time the demand for labor has

increased at a faster rate than the supply of labor

• As long as we continue to have increasing productivity, demand will out pace supply (remember that productivity only increases when production levels increase at a greater rate than population increases)

Reality

Price of

Labor

Quantity of Labor

S1

D1

Ep1

Eq1

D2

Ep2

Eq2

D3

S2S3

Eq3

Ep3

Derived Demand

• Labor Demand is a ‘derived demand’–Read page 226!

• Demand for labor set by demand for good or service

P

P Q

Q

S

S Labor

D1

D1 D2

D2 Labor

When the demand for a Good or

Service goes up…

The demand for inputs like labor

also goes up!

Wage

Labor

Good or Service

Input: Labor

Labor Force• Go to page 217: read!• Labor force: all nonmilitary people

who are employed or unemployed–16 years old or older–Not institutionalized–Employed or Unemployed and

looking for work

People Outside the Labor Force• Page 218: Read!• Discouraged, or Disgruntled Workers• Full-time students• Stay-at-home parents• RetireesSee chart on page 218

Occupational trends

• See page 218-219: Read!

• 1800’s = Agricultural• By 1900’s = Industrial• Late 1900’s = Service IndustrySee chart on page 219

• More women in the labor force!–See page 221 graph

• Increase in need for college/advanced degrees–Human Capital–Higher the degree, the higher the pay

• Immigrant workers increasing–Hotly debated–Supply of labor goes up… what does that do

to wages?

Unemployment Levels

Chapter 13 Section 1

Types of Unemployment1. Frictional: People taking time to find a

job2. Structural: Worker’s skills do not match

what skills are needed for a job3. Seasonal: Results from harvest

schedules, vacations, or seasonal shifts4. Cyclical: BAD UNEMPLOYMENT! Results

from economic downturns

Determining the Unemployment Rate• Take the number unemployed and divide it by the

number in the labor force, then multiple by 100 (to get the percent)

• Example: Labor force = 151.4 million Unemployed = 7 million 7/151.4 = .046 .046 x 100 = 4.6 (4.6 % unemployment)

Full Employment• Full employment is when there is an

absence of Cyclical unemployment• Full employment is 4-6 %

unemployment• Anything above 6 % is considered

Cyclical

Bureau of Labor Statistics (BLS)• Number of people in the labor

force• Employment Levels• Historical trends• Reports monthly unemployment

levels• Other data

National Unemployment level: June 2010 = 9.6 %

March 2012 = 8.4 %Sept 2012 = 7.8 %

Indiana Unemployment: June 2010 = 10 %

March 2012 = 8.6 %August 2012 = 8.3 %

Westfield Unemployment:June 2010 = 6.9 %March 2012 = 5 %

http://www.google.com/publicdata/explore?ds=z1ebjpgk2654c1_&met_y=unemployment_rate&idim=city:CT188270&fdim_y=seasonality:U&dl=en&hl=en&q=current+unemployment+rate#!ctype=l&strail=false&bcs=d&nselm=h&met_y=unemployment_rate&fdim_y=seasonality:U&scale_y=lin&ind_y=false&rdim=country&idim=city:CT188270&idim=state:ST180000&idim=country:US&ifdim=country&tstart=1263618000000&tend=1331870400000&hl=en_US&dl=en&ind=false

Obstacles to Market Forces

Government InterventionUnions

Concerns behind obstacles1. Fairness

• Rules-Fair• Results-Fair

2. Morals/ethics3. Lorenz curve (Rich-Poor Gap)4. Diplomacy5. Ignorance

ObstaclesGovernment• Taxes• Quotas• Ceilings• Floors

Unions• Higher wages• Increased

benefits• Better working

conditions

OUTSOURCING

Outsourcing• Read page 219!“Since 2000, the United

States has lost more than 5 million

manufacturing jobs and 850,000

information sector jobs, many of which have been shipped

overseas.”

January through March 2004

• 23,396 went to Mexico• 8,283 to China• 3,895 to India• 5,511 to Latin America• 4,419 to Asian countries• 2,933 to other countries

Research• Find the unemployment rates for America

since WWII… take notice of how often they exceed 6 %

• If the Full Employment Rate is around 4-6 %, why haven’t we seen a decline in jobs throughout the years of outsourcing???– The data doesn’t fit the anti-outsourcing

arguments…– WHY NOT???

Outsourcing• Outsourcing allows for

countries to specialize• Specialization

provides more and less expensive products– More for us for less

money!

• Standard of Living Rises

• America’s no longer industrial

• America is Service Industry

• We still have high Employment– Change in types of

jobs

Jobs ‘shipped’ overseas… yet how many NEW jobs created

here at the same time???

Outsourcing/Offshoring

Harmful to:•Micro-level industries that lose jobs

– Ex: Industry (factory) workers

•Local communities that depend on outsourced industry•Unskilled/Semiskilled workers

Helpful to:•Consumers in general (lower prices)•New industries

– Ex: Service jobs

•National Economic growth•Skilled/educated workers•Foreign nation receiving new jobs