Labor Economics Basics Labor Force Status of the

Labor Economics Basics

Labor Force Status of the U. S. Adult Civilian Population, June 2004 Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 2 -2

Labor market statistics • • Labor force participation rate Employment rate Unemployment rate Job vacancy rate

Relationship between Wages, Earnings, Compensation, and Income Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 2 -4

The Markets in Which Firms Must Operate Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 2 -5

Demand for Labor • Dependent demand • max π =p. Q-(w. L+r. K) • Scale effect vs. Substitution effect

Labor demand curve Wr DL Employer surplus W L L 7

Supply of Labor • Individuals or households? • Factors: – POP – Distribution of professions – Reservation wage – Alternative use of time: – Household work – Leisure – Non-work income – Income effect and substitution effect

A munkaerő-kínálati görbe Wr SL W Employee surplus L L 9

Equilibrium Wr SL DL Employer surplus We Employee surplus Le L 10

Nonfelxible wages and DWL Wr DL 0 SL DL 1 Dead weight loss W 0 DWL U L 1 L 0 L 11

Adjusting wages and DWL Wr SL DL 1 W 0 We DWL diminishes L 1 Le L 0 L 12

Effect of decreasing supply of work Wr DL SL 1 SL 0 W 0 V L 1 L 0 L 13

Adjusting wages remove shortage Wr DL SL We W 0 L 1 Le L 14