Labor Market National vs Local Labor Markets n

Labor Market

National vs. Local Labor Markets n National: Few employers and employees. n Ex: Markets for college professors, top management in large corporations. n n Local: Many employers and employees. n Ex: Secretaries, carpenters, electricians, . n

Internal Labor Market n Internal: n Exists within a firm if the firm fills higher level positions through promotion. n Why?

Primary vs. Secondary n Primary: n n High wages and stable employment relationships. Secondary: n Low wages and experience unstable employment relationships.

Labor Force n Labor Force: all non-institutionalized individuals aged 16+ who are working or actively seeking work. n Unemployment Rate: n n Unemployment Rate= # unemployed # in the labor force Labor Force Participation Rate: n Measures movement in and out of labor force and changes in UE rate. Labor force participation rate = labor force population

Types of Unemployment n 1. *Structural: n n Mismatch between skills and skills needed for jobs. 2. Cyclical: n n n Biggest Problem NOW Deficient-demand unemployment Not enough aggregate (total) demand to provide jobs for everyone who wants work. 3. Frictional: n Time period when people are searching for, or transitioning from one job to another. n Voluntary, and always present.

Quantity of Labor Demanded n Inverse/negative relationship b/w wage rate and quantity of labor demanded wage rate D n Result of: n Quantity of labor demanded As wage rate rises… Substitution effect: leads to sub. of other resource which results in reduction of quantity of labor demanded. n Scale effect (complex): a firm may want to scale back production. n Higher wages -> greater costs -> increase in equilibrium -> quantity demand of product falls (reduction of “scale” of production) -> reduction of output leads to reduction in quantity of all inputs (including labor)

Change in Labor Demand n Labor demand is affected by: n Demand for the product: n Demand for a resource is derived from the demand for the output that the resource produces. n n Ex: Demand for workers in automobile factories is derived from the demand of automobiles. When demand for final product rises, the demand for labor increase. Prices of other resources: n Effect of change depends upon whether that factor is a substitute or complement of labor. n Ex: If wage rate rises for adult workers in fast food industry? How will this affect the demand for teenage workers in this industry?