Labor Economics Chapter 2

Discourage Worker

a person who wants a job but has given up looking. pg 28

Substitution effect

capital being substituted for labor thus reducing the demand for labor. pg 37

Total Compensation

earnings + employee benefit = total compensation pg 34

Demand for Labor

how the number of labors employed by a firm changes depending on these 3 factors a) demand for product, b) the amount of labor and capital they can acquire given prices c) technology available pg 36

How does the number for labors demanded changes when wages change? For example it increases

if wages increases this suggests that the product prices are high. If the product prices are high consumers are not buying the product as much. This would result in firms hiring less workers or reducing their labor. This is known as the scale effect pg 36

Wages

payment for a unit of time pg 34

Labor Force

refers to those who are over the age of 16 and are employed, who are out of work but are actively searching, or who are expecting a recall after being laid off. pg 27

Supply of labor

the amount of time an individual is willing to work at various wage rates. pg 43

As discussed on page 45, in the early 1970s, Egypt experienced a dramatic outflow of construction workers seeking higher wages in Saudi Arabia at the same time that the demand for their services rose within Egypt. Graphically represent these two shifts of supply and demand, and then use the graph to predict the direction of change in wages and employment within Egypt's construction sector during that period.

the graph should show wages on the vertical axis and the number of workers on the horizontal axis. The outflow of construction workers should shift the labor supply curve of Egypt's construction sector to the left while the demand curve for the services of Egyptian construction workers should shift to the right. Both shifts should increase the equilibrium wage. The two shifts have opposite effects on employment so the change in employment should be ambiguous.

Labor Force Participation Rate

the percentage of the working-age population in the labor force. labor force / adult population = participation rate pg 28

Unemployment Rate

the ratio of those unemployed over the labor force. unemployed / labor force = unemployment rate pg 28

Real Wage

the wage measured in dollars of constant purchasing power; the wage measured in terms of the quantity of goods and services it will buy. wage rate (w) / price level (p) = real wage pg 31

Earnings

wages made multiplies by the time unit wages (w) x time (t) = earnings pg 4

Nominal Wage

what workers get paid per hour in current dollars . pg 31

Overpaid Workers Definition

workers whose wages are above the market clearing wage for their job. pg 48

Analyze the impact of the following changes on wages and employment in a given occupation: (a) A decrease in the danger of the occupation. (b) An increase in product demand. (c) Increased wages in alternative occupations

(a) A fall in the danger of the occupation, other things being equal, should increase the attractiveness of that occupation, shifting the supply curve to the right and causing employment to rise and wages to fall. (b) An increase in product demand will shift the demand for labor curve to the right causing both wages and employment to increase. (c) Increased wages in other occupations will render them relatively more attractive than they were before and cause the supply curve to the occupation in question to shift to the left. This will cause employment in this market to fall and wages to rise.

Problems arising from the CPI

1. consumer change the good and service they consume ex. if the price for beef rise, people would consume more chicken as a response. Pricing a fixed bundle may thus understate the purchasing power of current dollars, because it assumes that consumers still purchase the former quantities of beef. 2. Changes in quality ex. cellphone used to be a lot cheaper, however they are more expensive because the amount of things they could do now versus before pg 32

What are the three factors that influences demand for labor?

1. demand for product 2. the amount of labor and capital they can acquire given prices 3. technology available pg 36

What would happen to the wages and employment levels of engineers if government expenditures on research and development programs were to fall?

Government expenditure on research and development will effectively decrease and supply of engineers, leading to a leftward shift of the supply curve of engineers, resulting in higher wage rate and lower number of engineers.

What is one benefit of real wage?

It is useful to compare purchasing power over time when the nominal wage and the prices of goods and services are changing. pg 32

Suppose a particular labor market were in market-clearing equilibrium. What could happen to cause the equilibrium wage to fall? Suppose price levels were rising each year, but money wages were "sticky downward" and never fell; how would real wages in this market adjust?

Starting from the position of equilibrium, a labor market could experience a fall in the equilibrium wage if either the demand curve shifts to the left or the supply curve shifts to the right. While market wages are usually stated in nominal terms, their relationship to the prices of both consumer and producer products is of ultimate importance. Therefore, both parties to the employment relationship are, in the last analysis, concerned with the real wage rate. The real wage rate can fall when the nominal wage rate is rising if prices of consumer and producer products rise even more quickly.

Wage Rate

The price of labor per hour pg 31

Total Labor force

The sum of employed workers and unemployed job searchers. employed + unemployed = total labor force pg 28

Consumer Price Index (CPI)

a measure of the overall cost of the goods and services bought by a typical consumer. pg 32