1. Labor and Unemployment

2. Factor of Production YOU are labor!!!
You sell your labor (FOP): supply
Firms (business) buys your labor: demand

3. 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!

4. Supply/Demand for Labor
Market forces determine wages
Price of
Labor S
Supply of Labor: the worker Ep D
Demand for Labor: the Firm Eq
Quantity of Labor

5. 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

6. Shift in Demand for Labor
Productivity up; firms expand; demand for labor shifts upward; D1 to D2
Price of
Labor S
Ep2
Ep1 D2 D1
Eq1
Eq2
Quantity of Labor

7. Natural Market Forces still determine wages
Demand for labor up
Firms hire more people
Wages increase
Equilibrium still intact!
Everyone wins!!!

8. Shift in Supply for Labor
Price of
Labor S1 S2
Population up; Supply shifts up; S1 to S2
Ep1
Ep2 D
Eq1
Eq2
Quantity of Labor

9. 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!!!

10. 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)

11. Reality Price of Labor Quantity of Labor S1 S2 S3 Ep3 D3 Ep2 Ep1 D2 D1
Eq1
Eq2
Eq3
Quantity of Labor

13. Derived Demand Labor Demand is a ‘derived demand’
Demand for labor set by demand for good or service

14. P Q P Q The demand for inputs like labor also goes up!
Good or Service
When the demand for a Good or Service goes up… S P D2 D1
Input: Labor Q
S Labor P
Wage
The demand for inputs like labor also goes up!
D2 Labor D1 Q
Labor

15. What is happening to our Demand for Non-Durable Goods?
What is happening to our Demand for Durable Goods
What is happening to our Demand for Services?
What are the implications on the labor force & the TYPES of jobs available?

16. Labor Force
Labor force: all nonmilitary people who are employed or unemployed & looking for a job
16 years old or older
Not institutionalized
Employed or Unemployed and looking for work

17. People Outside the Labor Force
Discouraged Workers
Full-time students
Stay-at-home parents
Retirees

18. Occupational trends 1800’s = Agricultural By 1900’s = Industrial
Late 1900’s = Service Industry

19. OUTSOURCING

20. Sorting Tomatoes
1920’s
1950’s
2000’s

21. Ford Motor Company
2000’s
1920’s

22. Footloose Industry: An industry that is not tied to any particular location or country, and can relocate across national borders in response to changing economic conditions. Many manufacturing industries seem to have this characteristic.

23. Footloose/Non-Footloose employment growth in Indiana 1969-2013
Figure 1
Footloose/Non-Footloose employment growth in Indiana
Source: BEA, Author’s calculations

24. More women in the labor force!
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?

25. Immigration
Many Americans still believe that immigration hurts U.S. workers and the economy. Immigrants are perceived as taking jobs away from native-born Americans and filling the rolls for public assistance without paying their share of taxes to replenish the kitty. Nothing could be further from the truth. The overall effect immigration has on gross domestic product is between $1 billion and $10 billion a year. While these amounts may seem negligible in an $8 trillion economy (about one-eighth of 1 percent at most), they are still a gain—and not the drain many believe immigration to be.
Source:

26. A recent report prepared by a panel of economists and sociologists, and published by the National Research Council (NRC), shows that immigrants not only diversify the American economy, but also contribute to economic growth. And it is because they are different from natives that the economy as a whole profits. In many instances, immigrants both cause prices to fall, which benefits all consumers, and enable the economy to domestically produce a wider variety of goods than natives alone could.
Source:

27. Unemployment Levels 4.9 % Unemployment (August 2016)
62.8 % Labor Participation Rate (August 2016)
What does this mean???

28. Types of Unemployment Frictional: People taking time to find a job
Structural: Worker’s skills do not match what skills are needed for a job
Seasonal: Results from harvest schedules, vacations, or seasonal shifts
Cyclical: BAD UNEMPLOYMENT! Results from economic downturns

29. 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 = million
Unemployed = 7 million
7/151.4 = .046
.046 x 100 = 4.6 (4.6 % unemployment)

30. 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

31. Underemployment
Those who are employed but with fewer hours than desired (part time when full time is desired)

34. Bureau of Labor Statistics (BLS)
Number of people in the labor force
Employment Levels
Historical trends
Reports monthly unemployment levels
Other data

35. Obstacles to Market Forces
Government Intervention
Unions

36. Concerns behind obstacles
Fairness
Rules-Fair
Results-Fair
Morals/ethics
Lorenz curve (Rich-Poor Gap)
Diplomacy
Ignorance

37. Obstacles Government Taxes Quotas Ceilings Floors Unions Higher wages
Increased benefits
Better working conditions