Introduction to Labor Economics Chapter 1

The study of labor economics requires a solid foundation in microeconomics. Review material may be found at: http://www.oswego.edu/~kane/eco101.htm

Microeconomics background The study of labor economics requires a solid foundation in microeconomics Review material may be found at http://www.oswego.edu/~kane/eco101.htm

Labor market vs. other markets labor services are rented, not sold,

Labor market vs. other markets labor services are rented, not sold, labor productivity is affected by pay and working conditions,

Labor market vs. other markets labor services are rented, not sold, labor productivity is affected by pay and working conditions, and the suppliers of labor care about the way in which the labor is used.

Positive vs. Normative Economics Positive economics - an attempt to describe how the economy operates using the scientific method.

Positive vs. Normative Economics Positive economics - an attempt to describe how the economy operates using the scientific method. Normative economics - relies on value judgments to evaluate the overall functioning of the economy.

Positive economics abstraction

Positive economics abstraction ceteris paribus assumption

Positive economics abstraction ceteris paribus assumption test of model based on predictions, not assumptions

Fundamental positive economic concepts scarcity

Fundamental positive economic concepts scarcity rational self-interest

Fundamental positive economic concepts scarcity rational self-interest utility maximization

Fundamental positive economic concepts scarcity rational self-interest utility maximization profit maximization

Normative economics interpersonal comparisons of utility are impossible

Normative economics interpersonal comparisons of utility are impossible Pareto improvement

Normative economics interpersonal comparisons of utility are impossible Pareto improvement Pareto efficiency (aka Pareto optimality)

Normative economics interpersonal comparisons of utility are impossible Pareto improvement Pareto efficiency (aka Pareto optimality) problems with the Pareto optimality criterion

Markets and Pareto optimality under ideal conditions, markets result in Pareto efficient outcomes

Types of Market failure imperfect information,

Types of Market failure imperfect information, transaction barriers,

Types of Market failure imperfect information, transaction barriers, price distortions,

Types of Market failure imperfect information, transaction barriers, price distortions, the nonexistence of markets when externalities are present,

Types of Market failure imperfect information, transaction barriers, price distortions, the nonexistence of markets when externalities are present, public goods,

Types of Market failure imperfect information, transaction barriers, price distortions, the nonexistence of markets when externalities are present, public goods, and capital market imperfections.

Equity vs. Efficiency Attempts to make market outcomes more equitable often results in the loss of economic efficiency.