Economics for Leaders Lesson 5: Labor Markets

Economics for Leaders Labor Markets Scarcity forces us to choose and every choice has an opportunity cost. Open markets are a key institution for fostering economic growth and improving standards of living. Buying/Selling Labor…… How do labor markets work?

Economics for Leaders What do you want to be when you grow up? Why? What will you gain? What will you give up?

Economics for Leaders In the News Do you understand the statistics you see reported in the news? Prove it!

Economics for Leaders labor force # of people employed or seeking employment employment # of people that are employed unemployment # of people seeking employment, but not working Data available from US Bureau of Labor Statistics Labor Market Terminology

employment rate % of the labor force that is employed unemployment rate % of the labor force that is unemployed Data available from US Bureau of Labor Statistics Labor Market Terminology

cyclical: economic fluctuations structural: mismatch of skills to jobs frictional: relocation, search time, temporary seasonal: time of year the natural rate of unemployment Unemployment expansion: unemployment ↓ recession: unemployment ↑

Economics for Leaders What is the current UE rate in the US? Is it high or low historically? Unemployment

U.S. UE Rate Through June 2014: June 2014 UER = 6.3%, down from over 10% in early 2010

U.S. UE Rate 1980s: Reached a high of over 11% in early 1983 then declined

U.S. UE Rate 1990s: Reached a high just over 8% in early 1992, then declined

U.S. UE Rate 2000s: Small recession in , severe recession

U.S. UE Rate:

U.S. UE Rate:

U.S. UE Rate:

Economics for Leaders Voluntary Transactions → Gains From Trade Labor Markets Firms hire factors of production, produce G&S, earn profit when would a firm agree to hire a worker? labor demand (law of demand) Households sell factors of production, earn income, buy G&S when would an individual agree to sell their labor? labor supply (law of supply)

Economics for Leaders Labor Markets Labor Demand If the production of a worker is of great value to society, then the wage will tend to be high. Labor Supply If workers have few alternative employment options, the wage will tend to be low. If your skill is not unique, the wage will tend to be low.

Economics for Leaders Demand for Labor is Derived Demand There is only a demand for laborers if there is demand for the goods and services those laborers produce.

Economics for Leaders Derived Demand Demand for Pizza? YES Demand for Pizza Cooks? YES Demand for bullfights? NO Then NO demand for matadors!

Economics for Leaders Textiles

Economics for Leaders Market for Kites Price Quantity $ Demand Supply

Economics for Leaders Wage Quantity 0 $8/hr 75 Demand Supply Market for Kite-Makers

Economics for Leaders What if there is bad weather or abnormally calm winds? What happens in the kite market?

Economics for Leaders Market for Kites Price Quantity 0 $ $17 Supply Demand What happens to total revenue in the kite industry? How will this affect the labor market for kite workers?

Economics for Leaders Market for Kite-Makers How will this affect kite workers? Laid off Hours cut Wage cut Benefits cut Wage Quantity 0 $8/hr $7/hr 7565 Demand Supply

Economics for Leaders Suppose instead that it’s a very windy summer, or the national kite festival is scheduled in the area?

Economics for Leaders Why do more women choose to attend college today compared to the 1950s or 1960s? Working Women Opportunity Cost

Economics for Leaders Derived Demand: Demand in the market for what you produce is an important determinant of employability and wages. Productivity: Education, training and experience Human Kapital Infrastructure Technology, machinery and equipment Physical Kapital Use Economic Reasoning Tools to Prepare for the Labor Market

Economics for Leaders Network systems and data communications analysts Computer software engineers Computer systems analysts Environmental science and protection technicians Personal finance advisors Registered nurses Home care aides Health care aides Medical assistants Pharmacy technicians Gaming surveillance officers and investigators BLS Table 6 Growing Occupations:

Economics for Leaders BLS Table 8 Declining Occupations: Store clerks Cashiers, except gaming File clerks Farmers and ranchers Telemarketers Sewing machine operators Photographic processing machine operators Mail clerks, mail machine operators (non postal service) Postal service mail sorters, processors, and processing machine operators

Technology & Productivity

Economics for Leaders

Superstars! And Other High Earners Demand for Labor is Derived Demand

$150 M

Rodriguez finalizes $275M deal with Yankees

Compensating Differential

Success in the Labor Force = Make yourself relatively scarce Develop a unique skill set Diverse: technology, communication, personal