Structure of the Labor Market

secondary labor market characteristics

-wages are low and benefits minimal or non-existent -less desirable work conditions -jobs require low skill levels -social prestige is low -often part time work -lay offs and periods of unemployment are more common -turnover is often high *standard economic models are more useful in studying the secondary labor market!

primary labor market

Consists of high paying jobs with good benefits that have some degree of security and the possibility of future advancement

population

civilian non-institutional population; everyone 16+ AND not inmates of institutions and NOT on active duty / in Armed Forces

employment trends

labor force participation rate has declined considerable, 2/3 of this can be attributed to aging; explanations for remainder vary -gap between U6 and U3 seems to be growing

unemployed

no employment during survey week AND were available for work AND made effort to find employment during the previous 4 weeks

marginally attached

not in LF but people who want to and are available for work; have looked for job in last 12 months but not w/in past 4 weeks; includes discouraged workers

neo-classical models of labor markets

single labor market; wage differences are explained mostly on the supply side (by differences in human capital and workers preferences)

hours of work decision

workers trade-off between consumption of goods and leisure (good) trying to maximize their overall satisfaction (utility) under budget constraints

labor force participation rate (LFPR)

labor force / population

competitive labor market model: basic assumptions

(1) wages determined by supply and demand; workers productive capacities (2) firms are homogenous; all jobs are identical, firms bundle skills similarly (3) current market wages are costless to determine (4) all labor hired in "spot" mkt - no long term contracts (5) all compensation is monetary

unemployment and discouraged workers rate (U4)

(U+D)/(LF+D)

unemployment and marginally attached rate

(U+M)/(LF+M)

unemployment, marginally attached, and under-employed rate (U6)

(U+M+PTe)/(LF+M)

factors leading to the creation and maintenance of ILMs

-efficiency --> skill specificity -institutional

Firms leaving ILM practices behind

-less on-the-job training -less job security -more external hiring -continued influence on how firms are organized (NOT Australia or Korea)

primary labor market characteristics

-relatively high wages -fringe benefits -agreeable working conditions -employment security -job ladders: possibilities for raises/promotions -jobs require higher levels of skills and edu, may include a lot of on-the-job training -workers more likely to be protected by internal labor markets!

who is left out of the labor force

-retired persons -students -non-wage labor -discouraged workers

economic rents for labor

amount by which one's wage exceeds one's reservation price in a particular job

scale effect

a change in deamnd for labor when the wage rate drops in which a firm takes advantage of the lower price of labor by expanding production

substitution effect

a change in deamnd for labor when the wage rate drops in which a firm takes advantage of the wage rate by rearranging its mix of inputs while holding output constant; more labor in place of capital

employment population ratio (EPR)

employment / population

employment decision

firm maximizes profits by choosing how many workers to hire (labor) and how much plant and equipment to invest (capital); profit maximization implies cost minimization keeping the output constant, the firm chooses a least cost combo of labor and capital

if substitution effect < income effect then...

hours of work decrease when wage rate rises

if substitution effect > income effect then...

hours of work increases when wage rate increases

discouraged workers

individuals who would like to work but have given up looking for a job

research findings on internal hiring

internal promotion is more efficient than outside hiring

employed

population who work as paid employee OR worked in own biz OR worked 15+ hours unpaid in family biz OR not working but only temporarily absent

3 main practices commonly associated w ILMs

preference for internal hiring, wages attached to jobs (not workers), on the job training

external labor market

pricing, allocation and training of labor are determined directly by competitive forces; jobs are filled by workers outside the firm; "open" employment relationship

internal labor market

pricing, allocation, and training of labor are determined by administrative rules; jobs are filled by promotion and transfer and therefore are shielded from the direct influences of competitive forces; "closed" employment relationship

dual labor market theory (segmented labor market theory)

sees differences on the demand side, not explained by worker skills and taste; institutions often play critical role

secondary labor market

the sector of the labor market that consists of low-paying jobs with few benefits and very little job security or possibility for future advancement

reservation wage

the wage below which the worker would refuse (or quit) the job in question

how firms w strong ILMS respond to recessions / increases in labor supply

these firms AVOID decreasing wages and employment levels (although less work) but WILL alter hiring standards, change work hours (less common in US), use non-standard workers to supplement labor force

unemployment rate (UR, U3)

unemployment / labor force

hours of work decision: income effect

wage increases so wealth increases and the worker can afford more leisure --> person works less as increased wealth makes leisure easier to afford - top part of labor supply curve

hours of work decision: substitution effect

wages increase so reward for work increases (op cost of leisure rises) so substitute leisure for work - bottom of labor supply curve