1. Labor Market

2. National vs. Local Labor Markets
Few employers and employees.
Ex: Markets for college professors, top management in large corporations.
Local:
Many employers and employees.
Ex: Secretaries, carpenters, electricians,.

3. Internal Labor Market Internal:
Exists within a firm if the firm fills higher level positions through promotion.
Why?
Reduces hiring and training costs
Improves employee morale and motivation
Reduces the effect of uncertainty (firm already observed worker productivity)

4. Primary vs. Secondary Primary: Secondary:
High wages and stable employment relationships.
Secondary:
Low wages and experience unstable employment relationships.
Accountant, teacher, lawyer etc.
High school & college students, fast-food industry, retail.

5. Labor Force
Labor Force: all non-institutionalized individuals aged 16+ who are working or actively seeking work.
Unemployment Rate:
Unemployment Rate= # unemployed
# in the labor force
Labor Force Participation Rate:
Measures movement in and out of labor force and changes in UE rate.
Labor force participation rate = labor force
population
UE rate may decline when the number of discouraged workers rises.
UE may rise when discouraged workers become more optimistic

6. Types of Unemployment 1. *Structural: 2. Cyclical: 3. Frictional:
Biggest Problem NOW
1. *Structural:
Mismatch between skills and skills needed for jobs.
2. Cyclical:
Deficient-demand unemployment
Not enough aggregate (total) demand to provide jobs for everyone who wants work.
3. Frictional:
Time period when people are searching for, or transitioning from one job to another.
Voluntary, and always present.
Structural Unemployment biggest problem right now. Especially for men: less low skill jobs around (manufacturing decline) lack education
Solutions: reforming education, job training and retaining, rational immigration policy (best and brightest/most creative and innovative)

7. Quantity of Labor Demanded
Inverse/negative relationship b/w wage rate and quantity of labor demanded
Result of:
Substitution effect: leads to sub. of other resource which results in reduction of quantity of labor demanded.
Scale effect (complex): a firm may want to scale back production.
Higher wages -> greater costs -> increase in equilibrium -> quantity demand of product falls (reduction of “scale” of production) -> reduction of output leads to reduction in quantity of all inputs (including labor)
wage
rate D
Sub Effect: substitute for resources that have become more expensive: capital, energy, materials, other labor
Quantity of labor demanded
As wage rate rises…

8. Change in Labor Demand Labor demand is affected by:
Demand for the product:
Demand for a resource is derived from the demand for the output that the resource produces.
Ex: Demand for workers in automobile factories is derived from the demand of automobiles. When demand for final product rises, the demand for labor increase.
Prices of other resources:
Effect of change depends upon whether that factor is a substitute or complement of labor.
Ex: If wage rate rises for adult workers in fast food industry? How will this affect the demand for teenage workers in this industry?