2. Labor and Unemployment

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

4. 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!

5. 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

6. 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

7. 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

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

9. 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

10. 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!!!

11. 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)

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

13. Derived Demand Labor Demand is a ‘derived demand’ – Read page 226! Demand for labor set by demand for good or service

14. P P Q Q S S Labor D1D1 D1D1 D2D2 D 2 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

15. 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

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

17. Occupational trends See page 218-219: Read! 1800’s = Agricultural By 1900’s = Industrial Late 1900’s = Service Industry See chart on page 219

18. 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?

19. Unemployment Levels Chapter 13 Section 1

20. Types of Unemployment 1.Frictional: People taking time to find a job 2.Structural: Worker’s skills do not match what skills are needed for a job 3.Seasonal: Results from harvest schedules, vacations, or seasonal shifts 4.Cyclical: BAD UNEMPLOYMENT! Results from economic downturns

21. 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)

22. 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

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

24. 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

25. Obstacles to Market Forces Government Intervention Unions

26. Concerns behind obstacles 1.Fairness Rules-Fair Results-Fair 2.Morals/ethics 3.Lorenz curve (Rich-Poor Gap) 4.Diplomacy 5.Ignorance

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

28. OUTSOURCING

30. 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

31. 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???

32. 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???

33. 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