Economics for Leaders Lesson 5: Labor Markets

Low, Middle, & High Income Nations Economic reasoning tools developed this week will help us to answer this and other questions about world poverty 2

ERP-4: Institutions are the “rules of the game” that influence choices. Laws, customs, moral principles, superstitions, and cultural values influence people’s choices. Want to move from the large picture of nations’ income to the smaller picture of the individual’s income

ERP-2: Choices impose costs; people receive benefits and incur costs when they make decisions.

What about the income of people?

What determines how much people are paid? What will determine how much money you make?

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.

Market for Kites Price Qs ≈ $20 7500

Market for Kite-Makers $8/hr Wage ≈ ≈ 75 Qs

What if: bad weather, abnormally calm winds, oil spill closes all the beaches ???

Market for Kites Price $20 $17 ≈ ≈ 6300 7500 Qs

Market for Kite-Makers Wage $8/hr $7/hr ≈ ≈ 65 75 Qs

What if it’s a very windy summer, or the national kite festival is scheduled in the area, or a huge, new beach-side resort opens?

Market for Kites Price $23 $17 ≈ ≈ 6300 8800 Qs

Market for Kite-Makers Wage $8/hr $7/hr ≈ ≈ 65 80 Qs

Over Supply: Migrant Workers Until effective legislation to stem the flow of illegals, large and growing demand for crop workers could be satisfied without raising wages because of the over supply of illegal immigrants.

High Demand: Rosie the Riveter: High demand in WWII pulled women into the factory work force at higher wages than they could make in traditional “women’s occupations.”

Markets Determine the Price (Wage) of Labor In competitive markets, wages & benefits are determined by the supply & demand for labor Demand: Employers’ hiring decisions are based on the opportunity cost of hiring one worker over another, or hiring a worker rather than buying a machine. Supply: Workers consider wages, work conditions, & opportunity costs like welfare or unemployment compensation, other job offers etc.

Labor Market Terminology Labor force =# of people employed or seeking employment Employment= # of people that are employed Unemployment= # of people seeking employment, but not working Labor force participation= % of population at work

Use economic reasoning tools to prepare for the labor market Derived demand: Choose the right market – the market for what you can produce is an important determinant of wages

Listen to your Mama Make Yourself Scarce, Young Lady! Relative wages reflect the relative scarcity of the worker. Wage rates are determined largely by worker productivity

Use economic reasoning tools to prepare for the labor market Productivity: More productive employees within an industry earn higher wages Improve your “human capital” to make yourself more productive: Education and training Experience Choose the right place to work: Infrastructure Technology Institutions – the rules of the game

From BLS Table 6: The 30 fastest-growing occupations, 2006-2016 Network systems and data communications analysts Personal and home care aides Health care aides Computer software engineers Veterinary technologists and technicians Personal finance advisors Make-up artists, theatrical and performance Medical assistants Veterinarians Substance abuse and behavioral disorder counselors Gaming surveillance officers and investigators Physical therapist assistants

From BLS Table 8: The 30 occupations with largest employment declines, 2006-2016 Store clerks and order fillers Cashiers, except gaming Packers and packagers, hand File clerks Farmers and ranchers Order clerks Cutting, punching, and press machine setters, operators, and tenders, metal and plastic Telemarketers Inspectors, sorters, testers, samplers, and weighers First line supervisors of production Computer operators Photographic processing machine operators

How Do Employers Decide How Many People to Hire? Marginal Benefit = Marginal Cost Marginal Benefit is additional worker contribution to total revenue Marginal Cost is additional worker contribution to total cost

What affects worker Productivity? Skills - Investment in human capital Quality and quantity of physical capital with which labor works Other factors in the country/economy

Superstars What do these people have in common? $112 milion XXX What do these people have in common? How does technology allow them to leverage their labor time and raise their income? $225 million Put in video of diet coke and the mentos experiments $647 million $150 million

Poverty = Low Productivity Relative wages reflect the relative scarcity of the workers Wages are determined by productivity. Data on income by occupation supports the argument that the poor are by and large those with few valued skills; their productivity is low

Government & Labor Markets Government policies may impact labor markets by changing the incentives facing employers and/or workers: Mandated benefits Legislation: ADA Welfare Minimum wage How could raising the minimum wage increase unemployment? (2 answers – supply and demand) When would raising the minimum wage have no effect on employment?

Labor Issue: Government Regulation: All restrict labor markets: Family Leave Act Am. With Disabilities Act Mandated Benefits CAFÉ standards Costs/Benefits? Unintended Consequences?

The Supply of Labor impacts wages Unions and professional associations (like AMA, NEA) don’t set wages; they keep wages high by restricting the supply of labor. Good or bad? It depends on . . . Price $24 $20 ≈ ≈ 6250 7500 Qs

ERP-5: Understanding based on knowledge and evidence imparts value to opinions.

Labor Issue: Sweatshops The important questions: opportunity cost & alternatives ????

Labor Issue: Child Labor: The important questions: Where can they go? What are the unintended consequences of policies?

The “Big Ideas” from Lesson 5: Labor markets are affected by the demand for the goods and services that labor helps to produce. Individual productivity affects wages and technology affects individual productivity. Institutions (unions, government, etc.) affect the labor markets when they affect the supply of labor, the cost of hiring, and the prices of goods and services produced.

How to increase YOUR income and job satisfaction Make yourself scarce (talent skill) Increase your productivity education, skill, use of technology, infrastructure Do something fulfilling ..\..\My Videos\RealPlayer Downloads\Qwest DSL with MSN Premium.flv

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