The Aggregates of Labor Services in a Society - Essay Example

Chapter 3 In comparison with the 1940s American families are working more than before. Back in that era only 9% of families had dual workers; nowadays 39% of families have both parents working. Single mothers working in the labor force has doubled since the 1970’s. The participation rate of older workers has declined in our era. The aggregate of labor services in a society depends on four factors: size and demographic composition of population, the labor force participation rate, the number of hours worked per week, and quality of labor force. The size of a nation’s labor force depends on the size of its population and the fraction of its population participating in the labor market. Changes in population over the last century have resulted from changes in birthrates and net immigration. The baby boomers generation added 76 million people to the US population. Becker’s model of allocation of time has two perspectives: the household time and the multiples uses of time. The household is the basic decision making unit. In second perspective time can be used for three purposes. It can be sold in the labor market, used in household production, or used in consumption of goods and services. There are good intensive and time intensive commodities. In reference to available time a household should compare the productivity of each family member in all of the various markets and non market activities. Children have a competitive advantage as far as education opportunities. Based on Becker’s income effect the consumption of goods and services increases as income rises. The substitution effect states that household will substitute goods for time in the production of commodities as the wage rate increases. The potential labor force is composes of the entire population less people under the age of 16 and people who are institutionalized. The actual labor force is composed of people who are employed and unemployed people who are actively seeking employment. The labor force participation rate is calculated by the following formula: (Actual labor force / potential labor force) x 100. The amount of older workers in the workforce has declined. Four reasons for the decline are: rising real wage and earnings, social security and private pensions, disability benefits, and life cycle considerations. Two thirds of the growth in women labor participation is correlated to the women being married. Five factors that associated with the rising labor participation of women are: rising real wage rates for women, changing preferences and attitudes, rising productivity in the household, declining birthrates, and rising divorce rates. Chapter 4 Schooling quality based on the results of standardized tests varies by country. In 2000 Japan had the best quality of schools in the world. Human capital is the most valuable asset that exists in the corporate world. Human capital consists of the accumulation of prior investments in education, on-the-job training, health, and other factors that increase productivity. Investments with positive return on investment should be accepted. Investing in education increases the value of a domestic work force. Education can have diminishing rates of return. The reason is that education is subject to the laws of diminishing return and because costs rise and benefits fall as more education is obtained. Demand and supply can explain why different people invest in different amounts of human capital. The factors are ability differences, uncertainty of earnings, and access to funds. People with greater ability can obtain lower educational costs. For example an honor student can get a scholarship to fully or partially cover the student’s educational costs. Public policy affects the human capital composition of a country. There are capital market imperfections that create biases against investment in human capital in comparison with physical investments. Banks or investors cannot seize any asset if a human capital investment fails. Educational represents a severe cost for poor families. On-the-job training increases the human capital of a worker. Investments in one the job training must weigh the benefits obtained against the cost associated with the human capital project. Two types of on-the-job training are general and specific. Marginal product revenue is the increase in a firm’s total revenue associated with the employment of a given worker. Specific training is not transferable to other firms, thus the company must pay for it. In Ireland 46% of the employees receive job related education and training. Firms can recoup their investment in general training by paying less than the workers marginal productivity during the pos-training period. Companies that provide lots of specific training have a financial incentive to retain employees and keep turnover rates low. On the average people with greater education receive more on the job training. One of the criticism of human capital investments is that some of the training or educational programs should be treated as consumption. Another imperfection of human capital theory is that people with greater ability tend to do better in the labor market. The fact that these individuals also obtained a formal education is incidental to their success. Chapter 5 The demand for labor is a derived demand which means that the demand for labor depends on the demand for product or services. A production function is the relationship between the quantity of resources and its corresponding production outcomes. In the short run at least one resource is fixed. In the short run total product is the total output produced by each combination of labor and fixed amount of capital. Marginal product is the change associated with each additional unit of labor. In the zone of production total product continues to rise at a diminishing rate. Firms want to produce at an output level where changes in labor contribute to continued efficiency of either labor or capital. Marginal revenue product is the increase in total revenue resulting from employment of each additional labor unit. Marginal wage cost is the change in total wage cost resulting from the employment of one additional unit. Firms maximize profits when MRP=MWC. Based on the MRP = W rule the MRP curve is the firm short run labor demand curve. The four economic market structures are perfect competition, monopolistic competition, oligopoly, and monopoly. Due to differentiation the demand curve of imperfect competition is downward sloping instead of perfectly elastic. In the long run both labor and capital are variable. The long run demand for labor has a declining demand curve. The scale effect is the change in employment resulting from the effect of a wage change on the employer’s cost of production. Three factors that affect the long run demand for labor are product demand, capital interactions, and technology. The market demand for labor is less elastic than the simple horizontal summation of the labor demand curve of the individual employers. Based on the principle of competitive advantage total output will be greatest when each good is produced by the nation with the lower opportunity cost. The coefficient of elasticity is negative because wage rate and quantity of labor are inversely related. A change in the wage rate that causes the total wage bill to move in the opposite direction leads to elastic labor demand. Four determinants of demand are elasticity of product demand, ratio of labor costs to total costs, substitutability of other inputs, and supply elasticity of other inputs. The long run labor demand elasticity in the United States is 1.0. The effectiveness and impact of government policies are influenced by elasticity of labor demand. The major determinants of labor demand are product demand, productivity, the number of employers, and the prices of resources. Chapter 6 A perfectly competitive market has the following four characteristics: large number of firms, numerous qualified people, wage-taking behavior, and costless information. Labor supply curves of specific are positively sloped over realistic wage ranges. Higher wages attract laborers into the market. In perfectly competitive product and labor markets, labor supply curves measure marginal opportunity costs. The determinants of labor supply and demand can change causing upwards and downwards shifts in the curves. Five determinants of labor supply are other wage rates, nonwage income, nonwage aspects of the job, number of qualified suppliers, and preference for work versus leisure. Four determinants of labor demand are product demand, productivity, prices of other resources, and number of employers. In a perfectly competitive labor market the equilibrium wage rate and quantity of labor are determined by supply and demand. Average wage cost is the total wage divided by the number of units of labor employed. Marginal wage cost is the absolute change in total wage cost resulting from employment of an additional unit of labor. Efficient allocation of labor occurs when workers are being to their highest value of usage. Markets where two or more employers collude to fix a below competitive wage are joint or pure monopsony. The cobweb model traces labor supply adjustments to changes in labor demand and wage rates in markets characterized by long training periods. Read More