Economics for Leaders

Lesson 5: Labor Markets

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 Low, Middle, & High Income Nations

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 ERP-4:
Institutions are the “rules of
the game” that influence
choices.
Laws, customs, moral principles,
superstitions, and cultural values
influence people’s choices.

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 ERP-2:
Choices impose costs; people receive
benefits and incur costs when they
make decisions.

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 What about the income of
people?

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 What determines how much
people are paid?

What will determine how much

money you make?

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Demand for labor is Derived Demand

There is only a demand for laborers if

there is demand for the goods and
services those laborers produce.

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 Market for Kites

$20
Price

0
7500
Qs
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 Market for Kite-Makers

$8/hr

Wage

0
75
Qs
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What if: bad weather, abnormally calm winds, oil spill
closes all the beaches ???

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 Market for Kites

Price

$20

$17

0 6300 7500
Qs
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 Market for Kite-Makers

Wage

$8/hr
$7/hr

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Qs
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What if it’s a very windy summer, or the
national kite festival is scheduled in the area,
or a huge, new beach-side resort opens?

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 Market for Kites

Price

$23

$17

0 6300 8800
Qs
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 Market for Kite-Makers

Wage

$8/hr

$7/hr

0
65 80
Qs
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 Over Supply: Migrant Workers

Until effective legislation to stem the flow of illegals, large and

growing demand for crop workers could be satisfied without
raising wages because of the over supply of illegal immigrants.

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 High Demand:
Rosie the
Riveter:
High demand in WWII
pulled women into the
factory work force at
higher wages than
they could make in
traditional “women’s
occupations.”

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 Markets Determine the Price
(Wage) of Labor
In competitive markets, wages & benefits are
determined by the supply & demand for labor
– Demand: Employers’ hiring decisions are based
on the opportunity cost of hiring one worker
over another, or hiring a worker rather than
buying a machine.
– Supply: Workers consider wages, work
conditions, & opportunity costs like welfare or
unemployment compensation, other job offers
etc.
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 Labor Market Terminology
Labor force =# of people employed or
seeking employment
Employment= # of people that are
employed
Unemployment= # of people seeking
employment, but not working
Labor force participation= % of population
at work

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 Use economic reasoning
tools to
prepare for the labor market
Derived demand:
– Choose the right market – the market
for what you can produce is an
important determinant of wages

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 Listen to your Mama

Make Yourself Scarce, Young Lady!

Relative wages reflect the relative
scarcity of the worker.
Wage rates are determined largely
by worker productivity

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 Use economic reasoning tools to
prepare for the labor market
Productivity:
– More productive employees within an industry earn
higher wages
– Improve your “human capital” to make yourself more
productive:
• Education and training
• Experience
– Choose the right place to work:
• Infrastructure
• Technology
• Institutions – the rules of the game

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 From BLS Table 6:
The 30 fastest-growing occupations,
2006-2016
Network systems and data communications analysts
Personal and home care aides
Health care aides
Computer software engineers
Veterinary technologists and technicians
Personal finance advisors
Make-up artists, theatrical and performance
Medical assistants
Veterinarians
Substance abuse and behavioral disorder counselors
Gaming surveillance officers and investigators
Physical therapist assistants
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 From BLS Table 8:
The 30 occupations with largest employment
declines, 2006-2016
Store clerks and order fillers
Cashiers, except gaming
Packers and packagers, hand
File clerks
Farmers and ranchers
Order clerks
Cutting, punching, and press machine setters, operators,
and tenders, metal and plastic
Telemarketers
Inspectors, sorters, testers, samplers, and weighers
First line supervisors of production
Computer operators
Photographic
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How Do Employers Decide How
Many People to Hire?

Marginal Benefit = Marginal Cost

Marginal Benefit is additional worker

contribution to total revenue

Marginal Cost is additional worker

contribution to total cost

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 What affects worker
Productivity?

Skills - Investment in
human capital

•Quality and quantity of physical

capital with which labor works

Other factors in the country/economy

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 Superstars
$112
XXXmilion
What do
$225 million these
people have
in common?
How does
technology
allow them
to leverage
their labor
time and
raise their $647 million
income?
Economics for Leaders $150 million
 Poverty = Low Productivity

Relative wages reflect the relative

scarcity of the workers
Wages are determined by productivity.
Data on income by occupation
supports the argument that the poor
are by and large those with few valued
skills; their productivity is low

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 Government & Labor Markets
Government policies may impact labor
markets by changing the incentives facing
employers and/or workers:
– Mandated benefits
– Legislation: ADA
– Welfare
– Minimum wage
• How could raising the minimum wage increase
unemployment? (2 answers – supply and demand)
• When would raising the minimum wage have no effect
on employment?

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Labor Issue: Government Regulation:
All restrict labor
markets:
Family Leave Act
Am. With
Disabilities Act
Mandated Benefits
CAFÉ standards
Costs/Benefits?
Unintended
Consequences?

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 The Supply of Labor impacts wages

Price
Unions and
professional
associations (like
AMA, NEA) don’t
$24 set wages; they
$20 keep wages high by
restricting the
supply of labor.
Good or bad?
It depends on . . .

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 ERP-5:
Understanding based on
knowledge and evidence
imparts value to opinions.

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 Labor Issue: Sweatshops

The important questions: opportunity cost & alternatives ????

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 Labor Issue: Child Labor:

The important questions: Where can they go?

What are the unintended consequences of
policies?
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The “Big Ideas” from Lesson
5:
1. Labor markets are affected by the demand
for the goods and services that labor helps
to produce.
2. Individual productivity affects wages and
technology affects individual productivity.
3. Institutions (unions, government, etc.)
affect the labor markets when they affect
the supply of labor, the cost of hiring, and
the prices of goods and services produced.
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 How to increase YOUR income
and job satisfaction
Make yourself scarce (talent skill)
Increase your productivity
education, skill, use of technology, infrastructure
Do something fulfilling

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Rule 1: Life is not fair - get used to it!
Rule 2 : The world won't care about your self-esteem. The world will expect you to
accomplish something BEFORE you feel good about yourself.
Rule 3 : You will NOT make $60,000 a year right out of high school. You won't be a vice-p
resident wit h a car phone until you earn both.
Rule 4 : If you think your teacher is tough, wait till you get a boss.
Rule 5 : Flipping burgers is not beneath your dignity. Your Grandparents had a different word
for burger flipping: they called it opportunity..
Rule 6: If you u mess up, it's not your parents' fault, so don't whine about your mistakes,
learn from them.
Rule 7: Before you were born, your parents weren't as boring as they are now. They got that
way from paying your bills, cleaning your clothes and listening to you talk about how cool
you thought you were. So before you save the rain forest from the parasites of your parent's
generation, try delousing the closet in your own room.
Rule 8: Your school may have done away with winners and losers, but life HAS NOT. In some
schools, they have abolished failing grades and they'll give you as MANY TIMES as you want
to get the right answer. This doesn't bear the slightest resemblance to ANYTHING in real life.
Rule 9: Life is not divided into semesters. You don't get summers off and very few employers
are interested in helping you FIND YOURSELF. Do that on your own time..
Rule 10: Television is NOT real life. In real life people actually have to leave the coffee shop
and go to jobs.
Rule 11: Be nice to nerds. Chances are you'll end up working for one.

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