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Chapter One

Introduction to Labour Market Economics

Created by: Erica Morrill, M.Ed Fanshawe College

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Chapter FocusMain actors and rolesLabour supply and demandPolicy QuestionsCharacteristics of marketNeoclassical and alternative

approaches

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Labour Market Participants

IndividualsFirmsGovernment

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Decisions by Individuals When to enter the labour force How much education/training Type/extent of job search Occupation/Industry Labour hours/household work Accept/quit/ relocation Wage rate Union/association

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Labour Market Behaviour

Positive Aspects

Obtaining a job Promotion Increase in wage

rate Benefits

Negative Aspects

Unemployment Job displacement Discrimination Poverty

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Decisions by Employers # of workersWages/benefitsHoursLayoff /bankruptcySubcontractPension/retirement policy

Global Competition

Legislative Environment

Changing Workforce

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Global Competition Influences

Free trade Industrial restructuringDeregulationPrivatization

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Changing Workforce

AgeGenderEthnic diversity

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Legislative Environment

Human Rights Minimum wage Overtime Maternity leave Worker’s compensation Occupational health/safety Pensions/mandatory retirement Labour laws/collective bargaining

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individual rights vs. employer competitiveness public support

Training Insurance Compensation Pensions Vocational rehabilitation

Decisions by Government

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Labour Market Economics

Involves analyzing the determinants of the various dimensions of labour

supply and demand and their interaction in alternative market structures to determine wages,

employment and unemployment.

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Dimensions of Labour Supply

Quantity DimensionsPopulation growthLabour force participationWork hours

part-time overtime flex-time

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Dimensions of Labour Supply

Quality DimensionsHuman capital investments

education, training, health mobility

Work effort/intensity

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Dimensions of Labour Supply

Incentive effects of income maintenance and tax-transfer schemes wage subsidies income taxes insurance welfare disability pension plans

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Dimensions of Labour DemandThe firm’s demand for labour are based

on: labour costs firms output

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Supply and Demand

The interaction between supply and demand determines wages employment unemployment

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Table 1.1 Sources of Income for Individual Canadians, 1994

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Figure 1.1 The Distribution of Individual Labour Earnings, 1994

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Figure 1.2 The Distribution of Individual Annual Hours Worked, 1994

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The Supply and Demand ModelKey assumptions in the neoclassical

model: behavioural assumptions

how buyers and sellers respond to prices and other factors

interaction of buyers and sellers and level and terms of market exchange

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Figure 1.4 Wages and Employment in a Competitive Labour Market

NS

Employment

Wages

ND

W*

N*

W’

ND’ NS’

Supply >Demand

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Current Policy IssuesConcerns for both public and private

policymakersSupply DemandWage determination and wage structure Unemployment

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Similarities/Differences Between Labour Market and Other Markets

Various actors/goals three with different objectives or agendas

Sociological, institutional and legislative constraints

Market imperfections imperfect/asymmetric information costs uncertainty and risk

Complex price serving a variety of functions wage reflects a variety of factors

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Alternative Perspectives

Neoclassical InstitutionalismDualismRadicalism

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End of Chapter One