labor market and unemployment
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LABOR MARKET ANDUNEMPLOYMENT
Reported by:
Jhoanna Mary E. Pescasio
MBA Student
Ariel M. Plantilla, DBA
Professorial Lecturer
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Labor Market
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Factors of production
are the inputs used to produce
goods and services.
Labor, land, and capital are
the three most important
factors of production
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The Demand for Labor
Governed by the forces of
supply and demand.
Labor demand is a deriveddemand
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The Competitive Profit-Maximizing Firm
firm iscompetitive
firm is profitmaximizing
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The Production Function andthe Marginal Product of Labor
Firm must consider how the
size of its workforce affects the
amount of output produced
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Definition of terms
Production function describes therelationship between the quantity of theinputs used in production and thequantity of output from production.
Marginal product of labor increase inthe amount of output from an additionalunit of labor.
Diminishing marginal product theproperty whereby the marginal product ofan input declines as the quantity of theinput increases
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The Value of the Marginal Productand the Demand for Labor
Profit is total revenue minus total cost, theprofit from an additional worker is theworkers contribution to revenue minus theworkers wage.
Value of the marginal product of any inputis the marginal product of that input multipliedby the market price of the output.
A competitive, profit-maximizing firm hiresworkers up to the point where the value of themarginal product of labor equals the wage.
The value-of-marginal-product curve is thelabor-demand curve for a competitive, profit-maximizing firm.
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What Causes the Labor-
Demand Curve to Shift?
The Output Price
Technological ChangeThe Supply of Other Factors
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The Output Price
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Technological Change
Technological advance typically raisesthe marginal product of labor, which inturn increases the demand for labor andshifts the labor-demand curve to the
right.
It is also possible for technological
change to reduce labor demand. Theinvention of a cheap industrial robot, forinstance, could conceivably reduce themarginal product of labor, shifting the
labor-demand curve to the left.
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The Supply of Other Factors
The quantity available of one
factor of production can affect
the marginal product of otherfactors
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The Supply of Labor
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The Trade-off between Workand Leisure
people face trade-offs
the cost of something is what
you give up to get it
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What Causes the Labor-Supply Curve to Shift?
Changes in Tastes
Changes in AlternativeOpportunities
Immigration
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Equilibrium in the Labor
Market
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Determinants of Wages
The wage adjusts to balancethe supply and demand for
labor.The wage equals the value of
the marginal product of labor
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Equilibrium in a Labor Market
Like all prices, the price of labor(the wage) depends on supply
and demand. Because the
demand curve reflects the value
of the marginal product of labor, in
equilibrium workers receive the
value of their marginal
contribution to the production of
goods and services.
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Shifts in Labor Supply
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Shifts in Labor Demand
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Equilibrium in the Markets forLand and Capital
Purchase priceof land or
capital is the price a person
pays to own that factor ofproductionindefinitely.
Rental priceis the price aperson pays to use that factor
for a limited period of time.
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The Markets for Land andCapital
Supply and demand determine
the compensation paid to the
owners of land, as shown in panel(a), and the compensation paid to
the owners of capital, as shown in
panel (b). The demand for eachfactor, in turn, depends on the
value of the marginal product of
that factor.
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Unemployment
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Basic of Labor
The unemployment rate is the ratioof the number of people
unemployed to the total number of
people in the labor force.
Natural rate of unemploymentrefers to
the amount of unemployment that theeconomy normally experiences.
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Two categories of
unemployment
Long-run problem
Short-run problem
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Kinds of Unemployment
Cyclical unemployment
Frictional unemployment
Structural unemployment
How Is Unemployment
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How Is UnemploymentMeasured?
Labor force as the sum of the employedand the unemployed:
Labor force = Number of employed +
Number of unemployed.
Unemployment rate as the percentage of
the labor force that is unemployed:
Unemployment rate = No. of unemployed /
Labor Force x 100
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Reason for unemployment
Job Search
Minimum-Wage Laws
Unions and CollectiveBargaining
The Theory of Efficiency Wages
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Minimum-Wage Laws
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Unions and Collective Bargaining
A union is a type of cartel. Like anycartel, a union is a group of sellersacting together in the hope of exertingtheir joint market power.
Collective bargaining. the processby which unions and firms agree on
the terms of employment Strike the organized withdrawalof
labor from a firm by a union.
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Are Unions Good or Bad for the Economy?
When unions raise wages above thelevel that would prevail in competitive
markets, they reduce the quantity of
labor demanded, cause some workersto be unemployed, and reduce the
wages in the rest of the economy.
Necessary antidote to the market
power of the firms that hire workers.
Unions are important for helping firms
respond efficiently to workers
concerns.
The Theory of Efficiency
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The Theory of EfficiencyWages
Efficiency wages above-equilibrium wages paid by firms to
increase worker productivity.
Therefore, it may be profitable forfirms to keep wages high even in
the presence of a surplus of labor.
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Types of Efficiency Wage
Theory
Worker Health
Worker TurnoverWorker Quality
Worker Effort
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Thank You!
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