labor economics worktext

LABOR ECONOMICSWORKTEXT

Jameson N. Estrada

Pangasinan State University

Pangasinan State UniversityLINGAYEN CAMPUS

Lingayen, PangasinanPAN

GA

SIN

AN STATEUNIVE

RSITYPA

NG

AS

INAN STATE UNIV

ER

SITY

1979

PREFACE

Labor Economics with the course code Econ 125 concerns with the study of functioning anddynamics of the market for labor. It is an economic analysis of how workers, firms and the governmentinteract in shaping the outcomes in the labor market including demand and supply of labor,employment, wage structure and earnings, distribution of income, human capital, labor marketdiscrimination, labor unions, labor mobility, migration and unemployment.

This worktext is intended for use by students of AB Economics program taking up the subjectEcon 124 with the objective of providing them with a comprehensive understanding about LaborEconomics Likewise, it has been designed as an instrument for learning development andassessment, providing students with a practical approach to applying the knowledge learned in thelectures. Each worktext covers exercises that is built upon the lessons of all the chapters with thefollowing course outcomes:

1. Demonstrate an understanding of the nature and scope of labor economics.2. Analyze the various exogenous variables that affect or determine demand for labor.3. Examine the different exogenous variables that influence supply of labor.4. Understand the function and operations of a competitive labor market.5. Describe labor economic theories on wage structure and compensating wage differential.6. Develop an awareness on the economics of fringe benefits and incentive pay.7. Assess labor problems deterrent to increased labor productivity.8. Appreciate the significance of human capital for the growth of the country’s economy.9. Learn the impact of labor union and collective bargaining on employment, wages and

incentives to work.10. Comprehend the implications of labor mobility on wages and employment.11. Know the concept of unemployment and evaluate government policies to deal with the

different types of unemployment12. Determine the impact of government intervention in the labor market in terms of employment,

government spending and taxation.13. Apprehend labor discrimination problems and issues.14. Interpret labor data and statistics to better understand the Philippine labor market.15. Value the relevance of labor rights and privileges to worker’s attitude and explain the

provisions of the Labor Code of the Philippines in relation to labor welfare.Bear in mind that it takes sustained effort – and some dedicated patience – to study and learn

the subject. But, it is assured that the effort is well worth it. It is hoped this modest work helps you.So, the best of luck as you begin your journey in answering the worktext exercises!

TABLE OF CONTENTS

1 Introduction to Labor Economics

4 Labor Demand

9 Labor Supply

14 Labor Market Equilibrium

18 Wage Structure and Compensating Wage

Differentials

21 Fringe Benefits and Incentive Pay

24 Labor Productivity

28 Human Capital

31 Labor Unions and Collective Bargaining

35 Labor Mobility and Population

28 Unemployment

31 Government and the Labor Market:

Employment, Expenditures and Taxation

35 Labor Discrimination

35 Philippine Labor Market

CONTENTPAGE

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WORKTEXT 1 : Introduction to Labor Economics Econ 125 – Labor Economics

www.jamesonestrada.com

p EXERCISE 1 True or False. Determine whether each of the following statements is true or false. Write the answer on the blank after the number.

1. Labor economics is the economic analysis of how workers, firms and the government interact in shaping the outcomes in the labor market. __________

2. Relationship between price of labor and the number of

workers a firm is willing to hire generates the labor demand curve. __________

3. A worker is an actor of the labor market who supplies

labor service for payoff. __________

4. People who earn relatively high wages have higher opportunity costs of not working than do people who earn relatively low wages. __________

5. A person working in a factory is considered to be a capital resource. __________

6. Government regulates the “rules of the game” in the labor

market. __________

7. People who demand labor are employers. __________

8. Positive economics is an approach to labor analysis that reflects an opinion, which cannot be proved or disproved by reference to the facts. __________

9. The price of labor is called the wage rate. __________

10. Because job scarcity exists, workers must make choices, which means they do not incur opportunity costs. __________

11. Entrepreneurship may refer to the physical and mental

efforts that people contribute or provide to the production of goods and services. __________

12. In the labor market, households (workers) supply the labor resource needed. __________

13. Microeconomics looks into unemployment as one of the economic indicators that affects the overall performance of the economy. __________

14. In resource markets, the sellers are the owners of land,

labor, or capital, whereas the buyers are firms. __________

15. The demand for a resource by a firm depends on the demand for the goods and services that the firm produces. __________

16. Division of labor allows the group of workers to produce

much more as this breaks down the production of a good into separate task. __________

17. The higher the demand for a worker, the higher his wage rate will be. __________

18. Full employment is achieved when all persons willing and able to work at the prevailing wages and working conditions are able to do so. __________

19. Wage rates differ because the supply and the demand for different types of labor are not the same. ________

20. Employers will be willing and able to hire more people at

lower wage rates than at higher wage rates. __________

EXERCISE 2 Classification. Determine whether each of the following cases on labor economics is a concern of microeconomics or macroeconomics. Write MI for micro and MA for macro.

21. The unemployment rate of the country raised by 3%. __________

22. A worker’s decision to choose between two offered jobs - job A or job B. __________

23. The determinants why do some people earn more than others. __________

24. Because of reduced demand, a cellphone company

temporarily closes one of its factories and lays off workers. __________

25. Government extends tax subsidies to encourage firms to increase their employment. __________

Republic of the Philippines

Pangasinan State University

Lingayen Campus

WORKTEXT 1 : INTRODUCTION TO LABOR ECONOMICS Econ 125 – Labor Economics

NAME: _______________________________________ SCORE: ___________________________________

YEAR AND COURSE: ___________________________ DATE: ____________________________________

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26. The demand for Filipino workers in international labor market. __________

27. Sony Electronics laid off five thousand workers last year. __________

28. The union in a company directly affects the increase in wages of the factory workers. __________

29. A local travel agency has to close down because of the widespread availability of direct online booking. __________

30. The factors that make Google a great company to work in. __________

31. The firm’s decision of how many and which types of workers should it hire. __________

32. The offshore outsourcing trend has created some structural unemployment, as laid-off workers seek new jobs.

33. Joanna decides to work less overtime as the overtime wage rate falls. __________

34. The number of employed in the economy as a whole this year increased. __________

35. The public policies might affect the amount of unemployment caused by the world price change of oil. __________

36. Many domestic workers fear losing their jobs to offshore outsourcing—the contracting of work to suppliers in other countries. __________

37. More construction workers file for unemployment benefits in December than in June. __________

38. Government provides ground rules that guide exchanges made in labor markets. __________

39. The effects of labor productivity among workers in a

manufacturing plant in relation increased wage rate and improved working conditions. __________

40. The economic policies to be adopted to promote employment and growth in the economy as a whole. __________

EXERCISE 3 Classification. Determine whether each of the following statements is normative or positive. Write N for normative and P for positive.

41. The labor force participation rate in the Philippines is 64.1% during January 2013.

42. Several politicians have argued that the minimum wage should be raised in order to ensure that unskilled workers can make a decent living.

43. Many believe policies that depress the economy and

produce high unemployment are necessary to reduce embedded inflation.

44. The unemployment rate for those who hold at least a bachelor’s degree is 4 percent, compared with 9 percent for those without a high school diploma.

45. More job fairs should be done to allow people looking for work to meet with many potential employers.

46. Nominal wages are not adjusted for inflation.

47. Most economically advanced countries provide benefits to laid-off workers as a way to tide them over until they find a new job.

48. Earnings increase with education because the latter raises a worker's productivity.

49. As the wage rate rises, the quantity supplied of labor

rises, ceteris paribus.

50. The government should immediately implement a 120-peso increase in the minimum wage rate in Metro Manila.

51. Frictional unemployment results from the time it takes workers to move between jobs.

52. The administration makes substantial investment in human capital to improve the economic well-being of disadvantaged OFW workers.

53. Why do high skilled people better worked at a particular job?

54. The underemployment rate goes up to 22% during the past month.

55. Why college graduates, on average, earn more than those with just high school diplomas?

EXERCISE 4 Fill in the blanks with the appropriate word or phrase that completes each statement. Refer to the circular flow diagram below to answer the following.

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56. In product markets, ____________ demand goods and services, and firms supply them.

57. Worker’s wage rate is determined in the ____________.

58. Households receive income from businesses through the

____________.

59. Firms receive revenue from households through the ____________.

60. Resource market is the place where household’s

____________ labor resources.

61. In the factor markets, households are sellers of labor services, and firms are ____________.

62. In the product market, ___________ combine resources to produce and sell goods and services.

63. In the factor market, households provide the

____________ that firms use to produce goods and services.

64. Firms pay ____________ to households in exchange for labor services.

65. Households use the income they have received from the

sale of labor resource to ____________ goods and services

EXERCISE 5 Determine whether the following roles belongs to the workers, firms or government. Write W for workers, F for firms and G for government.

66. Impose taxes and grants subsidies. ____________

67. Look for the best job as much as possible. ___________

68. Decide who to hire, promote or fire. ____________

69. Provide ground rules that guide exchanges made in labor markets. ____________

70. Implement minimum wage laws. ____________

71. Join labor unions. ____________

72. Deliver safe and better working conditions.

____________

73. Want to maximize well-being subject to the constraints of time and income. ____________

74. Provide fringe benefits. ____________

75. Choose how much capital and labor to employ.

____________

EXERCISE 6 Briefly explain what is asked in the following. 76. Why there is a need to study labor economics? Discuss the importance. ___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________ 77. According to Aristotle, “Pleasure in the job puts perfection in the work.” Briefly explain.

___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________ 78. Describe the trends and fluctuations in the unemployment rate in the Philippines from 2000 through 2013. ___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________ 79. Provide an explanation why Kris Aquino earns P50 million a year and a schoolteacher P240,000 a year? ___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________ 80. Think about the type of career you hope to have when you are finished with your college education. Explain why you choose it. ___________________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________

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WORKTEXT 2 : Labor Demand Econ 125 – Labor Economicswww.jamesonestrada.com

EXERCISE 1

True or False. Determine whether each of the following statements is true or false. Write the answer on the blank after the number.

1. The demand side of a labor market includes all firms hiring labor in that labor market ___________

2. Marginal revenue product is the additional revenuegenerated by employing an additional factor unit.___________

3. As the wage rate rises, the quantity demanded for labor increases, ceteris paribus. ___________

4. The marginal product of labor generally declines as more labor is hired. ___________

5. A downward-sloping demand curve indicates that employers hire more people at lower wage rates.___________

6. A firm is willing to hire a worker when the marginal product of labor is greater than the wage. ___________

7. If the demand for a good decreases, then the demand for the labor that produces the good decreases, too.___________

8. A firm maximizes costs by buying factors in the combination at which the MPP-to-price ratio for each factor is the same. ___________

9. High wages are the result of low demand combined with high supply. ___________

10. The lower the demand for a worker, the higher his wage rate will be. ___________

11. To maximize profit, a firm will hire workers so long as the increase in revenue from hiring an additional worker exceeds the worker’s wage. ___________

12. The higher the elasticity of demand is for the product that labor produces, the higher the elasticity of demand is for labor. ___________

EXERCISE 2

Demand for labor is like the demand for any other good. Analyze what factors that might shift the demand for service crews at Jollibee, a fast food chain. For each case below, state whether labor demand will increase or decrease, and also state which of the factors seems to be causing the shift in demand.

13. A new college school opens up across the street from the Jollibee. ___________

14. Customers become much more concerned about clean and customer-oriented restaurants. ___________

15. A new branch of McDonald’s opens up near the Jollibee’s location. ___________

16. Many customers like the taste of the Jollibee’s new value meals. ___________

17. Because it’s summer season, the demand for Jollibee drinks rises. _________

18. The incomes of fast food consumers rise substantially.___________

19. People become willing to pay more for fast-food meals during Christmas season. ___________

20. Consumers expect the prices of Jollibee value meals tofall next week. ___________

21. Jollibee aggressively advertises its price-off promotion. ___________

22. A 5% increase in VAT (Value-added Tax) is placed on fast-food products. ___________

23. Consumers become health-conscious in eating fast-food products. ___________

24. The population of the city rises by 3%. ___________

25. McDonald’s decreases the price of its hamburger and fried chicken meals. ___________

NAME: _______________________________________ SCORE: ___________________________________


Republic of the PhilippinesPangasinan State UniversityLingayen Campus

WORKTEXT 2 : LABOR DEMANDEcon 125 – Labor Economics

2


EXERCISE 3

Indicate whether the following cases would have increase or decrease in demand for labor. Write IL if there is increase and DL if there is decrease.

26. People book their travel online nowadays (travel agents)

27. Demand for BPO services increases (call center agents)___________

28. Students use computers to do their encoding projects.(typerwriter encoders) ___________

29. Firms use industrial robots (factory workers)___________

30. Number of applications rises (software developers)___________

31. Increase in rice production (farmers) ___________

32. Real estate industry falls (real estate brokers)___________

33. Digital photography becomes popular (film photographers) ___________

34. Sales for consumer electronics products grow (sales managers) ___________

35. Increase in number of passengers ( bus drivers)___________

36. Implementation of K to 12 curriculum (high school teachers) ___________

37. Decline in infrastructure projects (construction workers)___________

38. New consumer goods are introduced to the market (promodisers) ___________

39. Film industry booms (cinematographers) ___________

40. Increase in demand for health professionals (medical technologists) ___________

41. More hospitals are built (nurses) ___________

42. Increase in overseas jobs (OFWs) ___________

43. Increase in demand for computers (IT professionals) ___________

44. Demand for cars doubles (auto technicians/mechanics) ___________

45. Increase in the number of drug stores (pharmacists) ___________

EXERCISE 4

For each case below, choose the appropriate letter thatcorresponds to the effect on the labor demand for factory workersassembling inkjet printers. State what determinant or factorinduces the change.

46. There is a 10% increase in the hourly wage of factory workers. ___________

47. Computer industry booms so more printers are being assembled. ___________

48. More labor unions are organized in the construction industry. ___________

49. The prices of inputs (materials and equipment) sharply fall. ___________

50. The number of manufacturers producing printers increases. ___________

51. The business taxes incurred by printer manufacturers rise. ___________

52. The government implements an increase in the minimum wage of factory workers. ___________

53. Labor unions bargain with the employers for the extrafringe benefits and increase in overtime wage rate._________

54. The hiring and training costs increase for incoming factory workers. ___________

55. A drop in the price of computer hardware would cause firms to hire or lay-off more factory workers. __________

56. Because of technological advances, industrial robots are introduced in the printer assembly-lines. _________

57. The price of printers rise substantially. ___________

58. The demand for computers increases as well as inkjet printers. ___________

59. A printer manufacturer reduces its wage rate to preventlayoff of workers. ___________

60. The government extends a subsidy of P300 for each unit produced to printer manufacturers. ___________

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EXERCISE 5

Multiple Choice. Encircle the one alternative that best completes the statement or answers the question

61. The demand for labor is the same as theA. marginal cost. B. marginal physical product.C. marginal revenue product. D. wage.E. elastic demand.

62. Which of the following concepts represents the extra revenuea firm receives from the services of an additional unit of a factor ofproduction?

A. total revenue B. marginal revenue productC. marginal physical product D. marginal revenueE. profit

63. When the wage falls, what would firms most likely do?A. Fire more workers.B. Hire more workers.C. Diversify into new markets.D. Shut down business.E. Nothing.

64. The demand for labor will be more elastic ifA. there is a short time under consideration.B. the demand for the product is relatively inelastic.C. there are few substitutes for labor.D. labor is a large percent of the total cost of production.E. all of the above.

65. The MRP of labor at a certain firm is P50 and the wage is P50per hour. Given this, the firm should

A. ask for more hours of work.B. fire more workers.C. hire more workers.D. cut back on hours of work.E. stay at the current level of employment.

66. The MRP of labor at a certain firm is P50 and the wage is P70per hour. Given this, the firm should

A. ask for more hours of work.B. fire more workers.C. hire more workers.D. cut back on hours of work.E. stay at the current level of employment.

67. Firms use what intersection to determine their labor demand?A. Labor supply and MRP of laborB. Wage and average costC. Wage and MRP of laborD. Average cost and average revenueE. Marginal cost and marginal revenue

68. A competitive firm should continue to hire workers untilA. MRP is equal to the number of workers hired.B. MRP is equal to zero.C. MRP is equal to demand.D. MRP is equal to the market wage rate.E. MRP is equal to labor supply.

69. Which of the following could result to a decrease in thedemand for labor in a particular job?

A. A decrease in the amount of risk associated with this job.B. An improvement in the working conditions associated with

this job.C. Additional training that increases the productivity of each unit

of labor in this market.D. An increase in the amount of risk associated with this job.E. A decrease in productivity of each unit of labor in this market.

70. If the elasticity of labor demand with respect to wages is – 2,what is the effect on labor demand of 15% increase in theequilibrium wage rate?

A. Labor demand decreases by 15%.B. Labor demand increases by 15%.C. Labor demand decreases by more than 15%.D. Labor demand decreases by less than 15%.E. No effect on labor demand.

EXERCISE 6

Problem Analysis. Analyze and answer what is required in the following problems.

A. Refer to the following table to answer the questions thatfollow.

Unit of Labor

Quantity of

Output

Marginal Physical Product

Price Total Revenue

Marginal Revenue Product

0 15 251 24 252 32 253 39 254 45 255 50 256 51 257 52 258 50 25

71. Calculate the marginal physical product.

72. Calculate the total revenue.

73. Calculate the marginal revenue product.

B. Tealicious café operates a production function per day asdescribed in the accompanying table. The equilibrium wage ratefor a worker is P300. Each cup of milk tea sells for P40.

Number of Workers

Quantity of Milk Tea Produced MP of labor VMPL

0 01 1102 2003 2704 3005 3206 330

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74. Calculate the marginal product of labor for each worker and the value of the marginal product of labor per worker.

75. How many workers should Marty employ?

C. Lorna’s Pancit Malabon has a production function per day described in the following table. The daily wage rate for each worker is P400. Each pancit malabon per bilao sells for P600.

Number of Workers Quantity of Pancit Malabon (per bilao)

0 01 122 223 304 365 406 42

76. Calculate the marginal product of labor for each worker and the value of the marginal product of labor per worker.

77. Draw the value of the marginal product of labor curve. Use the diagram to determine how many workers Lornashould employ.

78. Now the price of pancit malabon rises to P700. Calculate the value of the marginal product of labor per worker, and draw the new value of the marginal product of labor curve in your diagram. Use the diagram to determine how many workers Lorna should employ.

D. Refer to the following production schedule.

79. Complete the following table by calculating marginal product and average product from the data given.

80. Plot the TP, MP and AP curves on a graph using the completed data on the table and indicate the three stages of production in the drawn graph.

Inputs of labor

Total product

Marginal Product

Average Product

0 02 564 1326 2168 288

10 34812 38814 41216 41218 396

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WORKTEXT 3 : Labor Supply Econ 125 – Labor Economicswww.jamesonestrada.com

EXERCISE 1


1. Labor supply is the total number of hours that labor is willing and able to supply at a given wage rate._________

2. A person’s wage or salary is his opportunity cost of leisure. _________

3. As the wage rate rises, the quantity supplied of labor rises, ceteris paribus. _________

4. A change in the wage rate causes a shift in the supply curve. _________

5. Income-leisure trade-off assumes that to get more income a person has to put more time into working and thus has less time for leisure. _________

6. People who supply labor are employers. _________

7. The labor supply curve for an industry or occupation is downward sloping. _________

8. In lower-skilled occupations, labor supply is inelastic because a pool of labor is employable at a fairly constant market wage rate. _________

9. All else equal, the greater the population in any geographic area, the greater is the number of people who will want to work there. _________

10. More people will be willing and able to work at higher wage rates than at lower wage rates. _________

11. An improvement in the working conditions associated with a particular job decreases the supply of labor. _________

12. Skilled labor generates higher wages than less skilledlabor. _________

EXERCISE 2

Labor Supply Analysis. For each case below, choose theappropriate letter that corresponds to the effect on the supply of labor of call center agents in the BPO industry. State whatdeterminant of labor supply induces the change.

13. Many BPO companies begins to offer skyrocketing salaries to just-out-of-school graduates to increase the number of applicants for urgent vacant jobs. _____________

14. Most potential call center agents migrate to other countries offering higher salaries. _____________

15. The government raises income tax rate of people working in BPO industry. _____________

16. Higher wage rates in United States lured many callcenter agents to move there. _____________

17. The size of the labor force begins to shrink as workers are disillusioned by bad job prospects in BPO industry._____________


WORKTEXT 3 : LABOR SUPPLYEcon 125 – Labor Economics

NAME: _______________________________________ SCORE: ___________________________________


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18. Call center jobs become more risky due to long-term night shift of work schedules. _____________

19. Job opportunities grow in real estate industry which provide better compensation package. _____________

20. People now prefer call center works that induced large number of applicants to join the BPO workforce._____________

21. New ten thousand college graduates are added to the labor force. _____________

22. Workers experience a general rise in their wealth/income levels. _____________

23. Higher paying careers in FMCG companies become relatively less popular. _____________

24. Many women change their views of themselves and their economic role in society and decide that they would prefer to work in BPP sector. _____________

25. The working conditions improve significantly associated with call center agents. _____________

26. Business schools across the country raised their tuition for MBA degrees by 30 percent, thus few business managers invest to enroll. _____________

27. Opportunities to boost earnings through overtime pays increase. _____________

28. Job security and opportunities for promotion are ensured by the BPO companies to employees and applicants._____________

29. Necessary in-work trainings are provided to both new and old employees by many BPO firms. _____________

30. The salaries offered for call center agents are reduced by 25%. _____________

EXERCISE 3

Multiple Choice. Encircle the one alternative that best completes the statement or answers the question.

31. Which of these makes up labor supply?A. Workers B. Labor unionsC Sellers D. GovernmentE. Firms

32. Leisure is A. a complementary good.B. an inferior good.C. an intermediate good.D. an inelastic good.E. a normal good.

33. The labor supply curve is upward sloping becauseA. at higher wages workers want to work less.B. at lower wages workers want to work fewer hours.C. at lower wages employers want to buy more labor.D. at higher wages employers want to sell more labor.E. The wage does not give an incentive to work more hours.

34. Labor is inversely related to A. income.B. consumption.C. leisure.D. savings.E. all other goods.

35. When deciding how much to work, workers must choose between

A. labor and leisureB. consumption and laborC. consumption and leisureD. consumption and incomeE. labor and all other goods

36. Which of these measures the elasticity of labor supply? A. Response of employers to safer working conditions.B. Demand for skilled labor.C. Human capital invested by the firms.D. Sensitivity of labor supply to changes in wages.E. Responsiveness of employees to substitute occupations.

37. Workers use their indifference curves and budget constraints to

A. choose their investment plans.B. maximize their utility on consumer goods.C. decide what goods to purchase.D. optimize their consumption/leisure decisions.E. optimize their job selection decisions.

38. The skills and training acquired through education and on-the-job training of workers is

A. wage differentialB. working experienceC. human capitalD. labor investmentE. outsourcing

39. When wages increase, the substitution effect willA. decrease consumption.B. decrease all other goods.C. increase laborD. increase leisure.E. none of these

40. When wages fall, the income effect will A. decrease labor.B. increase leisure.C. decrease leisure.D. increase in incomeE. increase in consumption.

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EXERCISE 4


A. Jollimac works as a service crew at a fast-food restaurant. His labor supply schedule is described below.

Wage Rate (per hour)

Number of Hours (per week)

30 3035 3640 4245 4850 5455 60

41. Draw Jollimac’s individual labor supply curve.

42. Is Jollimac’s behavior irrational, or can you find a rational explanation? Explain your answer.

43. Derive Joliimac’s labor supply equation.

B. Adrian is a customer service representative and has 16 hours per day that he can allocate to work or leisure. His job pays a wage rate of P100 per hour. Leandro decides to consume 8 hours of leisure. His indifference curves have the usual shape: they slope downward, they do not cross, and they are bowed inward.

44. Draw Adrian’s time allocation budget line for a typical day. Then illustrate the indifference curve at his optimal choice.

45. Now Adrian’s wage rate falls to P50. Draw Adrian’s new budget line.

46. Suppose that Adrian now works only 4 hours as a result of his declined wage rate. Illustrate the indifference curve at his new optimal choice.

47. Adrian’s decision to work less as the wage rate falls is the result of a substitution effect and an income effect. In your diagram, show the income effect and the substitution effect from this reduced wage rate. Which effect is stronger?

C. Monica is a highly paid real estate consultant who earns P2,000 per hour. She has 15 hours per day that she can allocate to work or leisure. She typically decides to work for 10 hours.

48. Draw Monica’s time allocation budget line for a typical day, and illustrate the indifference curve at her optimal choice.

49. One of Monica’s clients is introducing top of the line condominium units. As a result, Monica’s consulting fee now rises to P4,000 per hour. Monica decides to work only 8 hours per day. Draw Monica’s new time allocation budget line, and illustrate the indifference curve at her optimal choice.

50. In your diagram, show the income effect and thesubstitution effect from this increase in the wage rate. Which effect is stronger?

1

WORKTEXT 4 : Labor Market Equilibrium Econ 125 – Labor Economicswww.jamesonestrada.com

EXERCISE 1


1. The wage rate and the number of people employed aredetermined in the labor market. ___________

2. At the equilibrium wage rate, the quantity supplied oflabor equals the quantity demanded of labor.___________

3. The price of labor is called the wage rate. ___________

4. People who demand labor are usually referred to asemployers, and people who supply labor are employees.___________

5. An increase in labor demand results in an increase inboth equilibrium wage and the equilibrium level ofemployment. ___________

6. A national labor market is one in which most job searchby employers and firms takes place on a national level.___________

7. Jobs in the primary labor market are characterized byhigh wages and stable employment relationships.___________

8. When the market has a surplus of labor, the wage ratefalls. ___________

9. A shortage in a labor market makes it harder for firms tofind workers and forces them to pay higher recruitingcosts to fill job vacancies. ___________

10. Wage rates differ because the supply and the demand fordifferent types of labor are not the same. ___________

11. A labor shortage will occur only when the wage rate failsto rise to its equilibrium value. ___________

12. When the labor market is in equilibrium, the amount ofGDP produced is potential GDP. ___________

EXERCISE 2

Classification. Determine whether each of the following covers primary labor market or secondary market. Write PL for primary labor market and SL for secondary labor market.

13. Lawyers ___________

14. Merchandisers ___________

15. Gas station attendants ___________

16. Financial advisors ___________

17. Janitors ___________

18. Dishwashers ___________

19. Electrical engineers ___________

20. Medical technologists ___________

21. Archeologists ___________

22. Architects ___________

EXERCISE 3

Classification. Determine whether each of the following covers local, national or international labor market. Write LL for local labor market, NL for national labor market and IL for international labor market.

23. College professors ___________

24. Sales managers in large corporations ___________

25. Truck drivers ___________

26. Waiters in cruise ships ___________

27. Caregivers ___________

28. Secretaries ___________

29. Pharmacists ___________

30. Overseas domestic worker ___________

31. Seafarers ___________

32. Production workers in Taiwan ___________


WORKTEXT 4 : LABOR MARKET EQUILIBRIUM Econ 125 – Labor Economics

NAME: _______________________________________ SCORE: ___________________________________


2


EXERCISE 4

Classification. Determine whether each of the following jobs covers agricultural, industrial or services sector. Write AS for agricultural sector, IS for industrial sector and SS for services sector.

33. Commercial fishermen ___________

34. Chefs ___________

35. Car mechanic ___________

36. Industrial engineers ___________

37. Forestry workers

38. Veterinarians ___________

39. Mason ___________

40. Registered nurses ___________

41. Construction foreman ___________

42. Social workers ___________

EXERCISE 5

Matching Type. Match each item of labor market sectors with the corresponding items of occupation by placing the appropriate letter before the number.

43. Real estate A. Surgeons

44. Manufacturing B. Miners

45. Agriculture C. Web developers

46. Transportation D. Tellers

47. Telecommunications E. Cooks

48. Food service F. Carpenters

49. Banking G. Appraisers

50. Health H. Farmers

51. Information technology I. Factory workers

52. Education J. Supermarket cashiers

53. Wholesale and retail K. Teachers

54. Mining L. Telephone operators

55. Construction M. Bus drivers

EXERCISE 6

Labor Market Analysis. You are analyzing the labor market forconstruction workers in the construction industry. Refer to theillustrations below depicting how each of the following events affects the equilibrium wage rate and quantity of labor demanded or supplied of construction workers. Write the letter of your choice on the blank provided after the number. Explain.

56. The construction works become more dangerous so laborers supply less. __________

57. People now prefer construction jobs that induced large number of construction workers to join the workforce.__________

58. The number of workers in the labor force increases.__________

59. The working conditions in the construction industry in general get worse. __________

60. The government increases the minimum wage received by construction workers. __________

61. The demand for leasing commercial buildings increases.__________

62. Workers now experience a general rise in their wealth levels. __________

63. Opportunities lessen in construction industry because of layoffs. __________

64. The income taxes levy on the workers’ salary increase.__________

65. The number of construction firms rises. __________

66. The prices of building materials and equipment substantially rise. __________

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67. Job opportunities increase in manufacturing industry that provide higher compensation and improved working conditions. __________

68. Construction firms begin to use newly developed robots that perform many tasks formerly done by construction workers. __________

69. Real estate industry grows so more buildings are built.__________

70. More labor unions are established in the construction industry. __________

EXERCISE 7

Problem / Graphical Analysis. Analyze and answer what is required in the following problems.

A. Suppose the labor market for janitorial works in Metro Manila is described by the diagram below.

71. What is the quantity of labor supplied if wage rate is P80?__________

72. What is the quantity of labor demanded if wage rate is P50? __________

73. What is the wage rate if quantity of labor supplied is 140 thousand? __________

74. What is the wage rate if quantity of labor demanded is 90 thousand? __________

75. What is the equilibrium wage rate? __________

76. What is the equilibrium labor quantity? __________

77. At a wage rate of P60 per hour, is there a surplus or shortage of labor? By how many workers? __________

78. At a wage rate of P30 per hour, is there a surplus or shortage of labor? By how many workers? __________

79. What is the labor demand equation? __________

80. What is the labor supply equation? __________

B. Suppose the labor demand and supply data in the following schedule relate the labor market for promodisers, a person employed by a company to be the sales and promotion representative. Use this to answer the questions that follow.

Wage Rate (per hour)

Quantity of Labor Demanded

(in thousands)

Quantity of Labor Supplied

(in thousands)

30 10 2050 20 2570 30 3090 40 35

120 50 40150 60 45180 70 50

81. Plot the labor demand and supply curves for promodisers.

82. What is the equilibrium wage rate and labor quantity? Mark in the equilibrium wage rate and equilibrium labor quantity in the plotted graphs.

83. Is there a surplus or shortage of labor at a wage rate P50 per hour? By how many promodisers? Does the equilibrium wage rate rise or fall? Label this in the plottedgraphs.

84. Is there a surplus or shortage of labor at a wage rate P120 per hour? By how many promodisers? Does the equilibrium wage rate rise or fall Label this in the plottedgraphs.

85. Derive the labor demand and labor supply equation represented by the table.

86. Suppose the number of companies hiring promodisersdeclines and companies demand 5 thousand less units of labor at each wage rate. Create a new labor demand schedule representing the lower demand for promodisers and derive a new labor demand function based on the new schedule. Graph the original and new labor demand curve and determine the new equilibrium wage rate and level of employment.

87. Suppose many promodisers are lured to shift to another jobs and now supply 5 thousand less units of labor at each wage rate. Create a new labor supply schedule representing the lower supply for promodisers and derive a new labor supply function based on the new schedule. Graph the original and new labor supply curve and determine the new equilibrium wage rate and level of employment.

C. A labor market has the following labor demand and labor supply functions. = 600 − 2 and = 200 + .

88. Find the equilibrium wage rate.

89. Find the equilibrium labor quantity.

90. Draw a graph of the labor market using the equations and mark in the equilibrium wage and labor quantity.

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WORKTEXT 10 : Unemployment Econ 125 – Labor Economicswww.jamesonestrada.com

EXERCISE 1


1. The unemployment rate is the percentage of the total number of people in the labor force who are unemployed. _____________

2. The labor force is equal to the difference of the employed and the unemployed. _____________

3. Some people who are officially unemployed are not in the labor force. _____________

4. Economists measure the cost of unemployment in terms of lost output. _____________

5. Cyclical unemployment results from fluctuations in economic activity caused by the business cycle. _____________

6. Full employment occurs when cyclical unemployment is zero. _____________

7. Discouraged workers are workers who have given up looking for work but who would still like a job. _____________

8. A person is in the labor force if he is working or actively seeking work. _____________

9. Frictional unemployment accounts for a larger share of total unemployment when the unemployment rate is low. _____________

10. Potential real GDP is the output produced at the natural rate of unemployment. _____________

11. Structural unemployment is situation where jobs exist but workers looking for work do not have the necessary skills for these jobs _____________

12. Efficiency wage theory states that firms operate more efficiently if wages are above the equilibrium level._____________

EXERCISE 2

Multiple Choice. Encircle the one alternative that best completes the statement or answers the question.

13. According to NCSO, labor force of all individuals whoA. 15 years of age and older.B. 18 years of age and older who are working.C. 16 years of age and older.D. 15 years of age and older, capable of engaging in work.E. 21 years of age and older who are not working.

14. A person who moved to a new place and took two months to find a new job experienced which type of unemployment?

A. Frictional unemploymentB. Structural unemploymentC. Natural unemploymentD. Cyclical unemploymentE. Seasonal unemployment

15. A person who is unemployed because of a mismatch between the quantity of labor supplied and the quantity of labor demanded is experiencing what type of unemployment?

A. Frictional unemploymentB. Structural unemploymentC. Natural unemploymentD. Cyclical unemploymentE. Seasonal unemployment

16. Which of the following can affect the natural rate of unemployment in an economy over time?

A. Labor force characteristics such as age and work experienceB. The existence of labor unionsC. Advances in technologies that help workers find jobsD. government job training programsE. All of the above

17. When the economy goes into recession, the biggest increase in unemployment is _______.

A. structural because jobs are lost in most places.B. cyclical because jobs are lost in many industries as they cut

production.C. frictional because the creation of jobs slows.D. the combination of structural and frictional as few new jobs

are created.E. seasonal unemployment because in-demand jobs falls.


WORKTEXT 10 : UNEMPLOYMENTEcon 125 – Labor Economics

NAME: _______________________________________ SCORE: ___________________________________


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18. The sum of the frictional and structural unemployment rates is equal to the

A. potential unemployment rate.B. real unemployment rate.C. natural unemployment rate.D. zero unemployment rate.E. cyclical unemployment rate.

19. Consider a shoe factory that permanently closes because of foreign competition. If the shoe factory’s workers cannot find new jobs because their skills are no longer marketable, then they are classified as

A. seasonally unemployed. B. frictionally unemployed.C. structurally unemployed. D. cyclically unemployedE. technologically unemployed

20. When the unemployment rate_______ the natural unemployment rate, real GDP is _______ potential GDP and the output gap is _______.

A. exceeds; below; negativeB. is below; below; negativeC. exceeds; above; positiveD. is below; above; negativeE. is constant; below; negative

21. If the number of unemployed stays the same and the number of people in the labor force rises,

A. the unemployment rate will rise.B. the unemployment rate will fall.C. the unemployment rate will stay the same.D. the unemployment rate will fall and become zero.E. the unemployment cannot be measured.

22. People who are not working will be counted as employed if they are

A. on vacation.B. on sick leave.C. absent from their job because of bad weather.D. absent from their job because of a labor dispute.E. all of the above.

23. John Steinbeck’s Cannery Row describes a character who takes his own life because of poor job prospects. If he was an unemployed person who gave up looking for work, he would be considered:

A. chronically unemployed.B. a discouraged worker.C. a member of the labor force.D. frictionally unemployed.E. all of the above.

24. The results of the December 2013 Labor Force Survey revealed that there were 2.88 million unemployed people. What is the unemployment rate if there were 41.3 million persons in the labor force?

A. 71.42% B. 6.97%C. 12.93% D. 33.18%E. 1.86%

25. If the unemployment rate is 12 percent and 75 million people are working, how many people are unemployed?

A. 5 million B. 9 millionC. 24 million D. 7 millionE. 3 million

EXERCISE 3

Determine whether each of the following would be considered frictional, structural, seasonal, technological, or cyclical unemployment.

26. A promodiser who was hired for the Christmas season is laid off after Christmas. ___________

27. Many workers are laid off due to reduced aggregate demand in the economy. ___________

28. A worker in a DVD rental store becomes jobless asvideo-on-demand cable service becomes more popular.___________

29. A new college graduate is looking for employment.___________

30. When a telephone exchange in a city is automated, some jobs in that city are destroyed. ___________

31. Sony Corporation plans to reduce its workforce by 12,000 jobs to remedy its dire financial situation.___________

32. A public relation officer resigned from her job and is currently searching for a new one.

33. Because of reduced demand, an appliance company temporarily closes one of its factories and lays off workers. ___________

34. Job applicants do not match the job qualifications want by a manufacturing company. ___________

35. A broadsheet writer leaves her job to make a switch into television writer. She has been looking for a new job for several months. ___________

36. A local travel agency has to close down because of the widespread availability of direct online booking options.___________

37. The economy gets worse, so an electronics companyshuts down a factory for four months, laying off workers.

38. An automobile company lays off 2,000 workers and replaces them with robots. The workers start looking for jobs outside the auto industry. ___________

39. About three workers per month at a plastic plant quit their jobs because they want to live in another town. They start searching for work in the new town.___________

40. A mining company goes bankrupt and lays off its workers, who immediately start looking for new jobs.__________

41. After an unsuccessful search, some of the laid-off workers quit looking for new jobs. ___________

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42. Some zoo keepers left their job due to unfair labor practices of the new management. ___________

43. A stock market boom induces newly enriched 60-year-old workers to take early retirement. ___________

44. Due to the current slump in investment spending, a worker has been laid off from his programming job.___________

45. Rice farmers lost their jobs after harvest season. ___________

EXERCISE 4

Indicate whether each of the following people would be counted as unemployed. Write Y if yes and N if no. Justify your answer.

46. Robylyn, an older worker, has been laid off and gave up looking for work five months ago. ___________

47. Joshua, a schoolteacher, is not working during his three-month summer break. ___________

48. Grace, a sales agent, has been terminated and iscurrently searching for another position. ___________

49. Rogelio, a trained musician, can only find work playing for local parties. ___________

50. Andrelyn, a graduate student, went back to school because jobs were scarce. ___________

51. Kristine, a laid-off worker, quit looking for new jobs after an unsuccessful search. ___________

52. Reynald, a fresh college graduate, starts to look for an available job. ___________

53. Ronel, a full time college student, loses his part-time job as a library clerk. ___________

54. Jessica, an architect, who is working only with a clerk’s position. ___________

55. Miriam, a data analyst, is currently employed in ABC Corporation. ___________

56. Mr. Braganza, a retired police, is enjoying his retirement benefits. ___________

57. Michael, an autoworker who is still out of work two years after her plant closed. ___________

58. Mikee, a homemaker returning to the labor market after an absence of 10 years and looking for work.

59. Johnry, a factory worker who is laid off until business picks up again. ___________

60. Eric, prison in New Bilibid Prison ___________

EXERCISE 5


A. When the following cases occur, does the unemployment rate rise, fall, or stay the same?

61. Workers are laid off and start looking for work.

62. People without jobs who are looking for work find work.

63. People without jobs and looking for work give up and stop looking.

64. People without jobs and not looking for work becomeencouraged and decide to start looking for work.

65. People without jobs and not looking for work take a job immediately.

B. What is the labor market classification of each of the following individuals? Be as specific as possible, and explain your answer.

66. Julie has a graduate degree in mechanical engineering. She works full-time mowing lawns.

67. Jeff was laid off from his previous job. He would very much like to work at any job, but, after looking for work for a year, has stopped looking for work.

68. Ian is working 25 hours per week at a bookstore, and has no desire to work full time.

69. Raj has decided to take a year off from work to stay home with his daughter.

C. Are the following workers more likely to experience short-term or long-term unemployment? Explain.

70. A construction worker laid off because of bad weather.

71. A manufacturing worker who loses her job at a plant in an isolated area.

72. A stagecoach-industry worker laid off because of competition from railroads.

73. A short-order cook who loses his job when a new restaurant opens across the street.

74. An expert welder with elementary education who loses his job when the company installs automatic welding machinery.

D. Use the data provided below to calculate each of the following.Show how you calculate each.

Population age 16 year old and order 17 millionEmployment 11 millionUnemployment 650 thousand

75. The size of the labor force.

76. The labor force participation rate.

77. The employment rate.

78. The unemployment rate.

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E. The results of the January 2014 Philippine Labor Force Survey (LFS) revealed that approximately 37.94 million were employed, 2.89 were unemployed and 22.93 million were not in the labor force. Use this information to calculate the

79. Adult population.

80. Labor force.

81. Labor force participation rate.

82. Employment rate.

83. Unemployment rate.

F. Calculate the unemployment rate and the labor force participation rate in the following cases:

84. Employed: 100 million. Population: 250 million. In labor force: 160 million.

85. Unemployed: 9 million. Population: 200 million. Employed: 90 million.

86. In labor force: 70 million. Population: 80 million. Unemployed: 2 million.

G. Determine the impact on each of the following if 1.8 million formerly unemployed workers decide to return to school full time and stop looking for work:

87. The labor force participation rate.

88. The size of the labor force.

89. The unemployment rate.

H. Suppose that NSO survey reported the following data in a barangay of 1,000 people: 480 worked at least 1 hour as paid employees; 120 did not work but were temporarily absent from their jobs; 240 did not have jobs and didn’t want to work; 90 were available for work and last week they had looked for work; and 70were available for work and were waiting to be recalled to their previous job.

90. Calculate the unemployment rate.

91. Calculate the labor force participation rate.

I. Suppose there are 180 million people in the labor force, the unemployment rate is 7.0%, the labor force participation rate is 70%, and the natural rate of unemployment is 3%.

92. How many people are in the adult population?

93. How many people are not working?

94. How many people are working unemployed?

95. How many people are unemployed?

96. How many percentage points is output above or below its potential?

J. In a municipal economy, in May 2014, 40,000 were employed, 3,500 were unemployed. During June 2014, 120 lost their jobs and didn’t look for new ones, 40 people quit their jobs and retired, 180 people who had looked for work were hired, 70 people became discouraged workers, and 60 new graduates looked for work

97. Calculate the change in the unemployment rate from May 2014 to June 2014.

K. Suppose there is only one labor market in Econland. All workers have the same skills, and all firms hire workers with these skills. Use the accompanying diagram, which shows the supply of and demand for labor, to answer the following questions. Illustrate each answer with a diagram.

98. What is the equilibrium wage rate in Econland?

99. At the equilibrium wage rate, what are the level of employment, the size of the labor force, and the unemployment rate?

100.If the government of Econland sets a minimum wage equal to P30 per hour, what will be the level of employment, the size of the labor force, and the unemployment rate?

101.If unions bargain with the firms in and set a wage rate equal to P60 per hour, what will be the level of employment, the size of the labor force, and the unemployment rate?

102.If the concern for retaining workers and encouraging high quality work leads firms to set a wage rate equal to 50, what will be the level of employment, the size of the labor force, and the unemployment rate?

L. A rise in the unemployment rate accompanies a fall in real GDP. Which of the following are consistent with the observed relationship between growth in real GDP and changes in the unemployment rate? Which are not?

103.A rise in the unemployment rate accompanies a fall inreal GDP.

104.An exceptionally strong business recovery is associatedwith a greater percentage of the labor force being employed.

105.Negative real GDP growth is associated with a fall in theunemployment rate.

LABOR ECONOMICS WORKTEXT

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