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==Project description==
This project aims to broaden the class labor economics knowledge by offering an alternative perspective on the wage effects on labor supply. What arose our interest in the subject matter was Prof. McPhail's statement that the income and substitution effect offset each other for men, while the substitution effect dominates for women. Surprisingly, on the aggregate, economics assumes that substitution effect dominates. This difference did not have any obvious explanation, and that intrigued us as young researchers. Thus, we found some valuable papers scrutinizing income and substitution effects, and men and women's reactions to fluctuations in the real wage. This led us to some interesting findings on the different amount of leisure and sleep genders need. Our sincere hope is that both genders will enjoy this project, as we answer our research question: "Why do men and women react differently to changes in the wage?" Thank you!
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==Labor Economics==
==Labor Economics==
Labor economics deals with the various processes that govern the labor market by explaining them and trying to find connections between the different forces in interaction. The labor market is a market based on the relationship between workers and employers. The way labor economics approaches the subject is by separately examining the supply of labor services provided by the workers and the demand of labor exerted by the employers, and then trying to understand the resulting pattern of wages, employment, and income.
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Labor economics is an interesting subject matter because employment is major issue in all of economics and business, as well as an important factor for human happiness. The opposite phenomenon, unemployment, is probably the biggest problem affecting the working age population. It has direct and harsh consequences for the individual and the economy as a whole and that is why full employment (or the maximum reduction of unemployment) is a primary goal of most governments in the world today.
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<center>[[Image:LunchF.jpg|thumb|Description]]</center>
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==Macroeconomic Aspect==
In macroeconomics, the labor force is defined as the number of people employed plus the number unemployed but seeking work. The participation rate in the labor force is the number of people in the labor force as a percentage of the whole working age population. Unemployment is the difference of the labor force and the number of people currently employed; therefore the unemployment rate is determined by dividing the level of unemployment by the current labor force.
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Labour economics seeks to understand the functioning of the market for labour. Labour markets function through the interaction of workers and employers. Labour economics looks at the suppliers of labour services (workers), the demanders of labour services (employers), and attempts to understand the resulting pattern of wages, employment, and income.
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It is an important subject because unemployment is a problem that affects the public most directly and severely. Full employment (or reduced unemployment) is a goal of many modern governments.
Employment level, unemployment level, labor force, and unfilled vacancies are classified as stock variables since they measure a quantity of labor at a point in time. Other variables, such as natural population growth, net immigration, new entrants in the labor force, and retirements from the labor force, are called flow variables. The latter measure quantity of labor over time and are responsible for changes in the labor force. Unemployment depends on entrance of people in the labor force looking for jobs, of employed people who lose their jobs and look for new ones, of outflows of people who find new employment, and of people who stop looking for jobs. Different types of unemployment are distinguished: frictional, structural, and cyclical.<sup>1</sup>
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macro:
The labour force is defined as the number of people employed plus the number unemployed but seeking work. The participation rate is the number of people in the labour force divided by the size of the adult population (or by the population of working age). The unemployment level is defined as the labour force minus the number of people currently employed. The unemployment rate is defined as the level of unemployment divided by the labour force. The employment rate is defined as the number of people currently employed divided by the adult population (or by the population of working age). In these statistics, self-employed people are counted as employed.
Variables like employment level, unemployment level, labour force, and unfilled vacancies are called stock variables because they measure a quantity at a point in time. They can be contrasted with flow variables which measure a quantity over a duration of time. Changes in the labour force are due to flow variables such as natural population growth, net immigration, new entrants, and retirements from the labour force. Changes in unemployment depend on: inflows made up of non-employed people starting to look for jobs and of employed people who lose their jobs and look for new ones; and outflows of people who find new employment and of people who stop looking for employment.
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When looking at the overall macroeconomy, several types of unemployment have been identified, including:
==Criticism==
 
Labor economics is a well developed science with a long tradition and years of background. However, there are critics that say that the commonly accepted approach overlooks important factors that affect employment and labor. One such phenomenon are social networks, which play quite an important role in the employment process. Personal connections are essential for both workers and employees as they are often what determines who gets a job and who does not, especially in more communitarian societies and cultures marked by a large power distance index. Another factor that the classical approach to labor in economics overlooks are all the employment decisions, particularly on the supply side, which can be quite determinate as well. Lastly, unpaid labor is also a part of the labor market that plays an important part in society but is not well taken account for by labor economics as there is no agreed upon method of incorporating it into standard analysis. All those factors suggest that labor market models might be somewhat biased. However, standard analysis is entirely sufficient for the purpose of this project.
Frictional unemployment — This reflects the fact that it takes time for people to find and settle into new jobs. If 12 individuals each take one month before they start a new job, the aggregate unemployment statistics will record this as a single unemployed worker. Technological change often reduces frictional unemployment, for example: the internet made job searches cheaper and more comprehensive.
Structural unemployment — This reflects a mismatch between the skills and other attributes of the labour force and those demanded by employers. If 4 workers each take six months off to re-train before they start a new job, the aggregate unemployment statistics will record this as two unemployed workers. Technological change often increases structural unemployment, for example: technological change might require workers to re-train.
Natural rate of unemployment — This is the summation of frictional and structural unemployment. It is the lowest rate of unemployment that a stable economy can expect to achieve, seeing as some frictional and structural unemployment is inevitable. Economists do not agree on the natural rate, with estimates ranging from 1% to 5%, or on its meaning — some associate it with "non-accelerating inflation". The estimated rate varies from country to country and from time to time.
Demand deficient unemployment — In Keynesian economics, any level of unemployment beyond the natural rate is most likely due to insufficient demand in the overall economy. During a recession, aggregate expenditure is deficient causing the underutilization of inputs (including labour). Aggregate expenditure (AE) can be increased, according to Keynes, by increasing consumption spending (C), increasing investment spending (I), increasing government spending (G), or increasing the net of exports minus imports (X?M).
{AE = C + I + G + (X?M)}
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One critique of standard economic analysis of labour markets is that it does not account for the importance of social networks in the employment process. This view holds that personal connections are key for both workers and employees. Hence, employees are more likely to apply for jobs where they have a personal connection, and are more likely to be hired if they apply.
More generally sociologists and political economists claim that labour economics tends to lose sight of the complexity of individual employment decisions. These decisions, particularly on the supply side, are often loaded with considerable emotional baggage and a purely numerical analysis can miss important dimensions of the process.
Also missing from most labour market analysis is the role of unpaid labour. Even though this type of labour is unpaid it can nevertheless play an important part in society. The most dramatic example is child raising. Unpaid work is typically ignored because it is difficult to measure and there is no agreed upon method of incorporating it into standard analysis. When the unpaid labour variable is ignored, the model’s conclusions might be biased.
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<sup>1</sup>[http://www.wikipedia.com/ Wikipedia.com]

Latest revision as of 23:20, 6 May 2006

Page Overview | Income and Substitution Effects | Female vs Male Behavior in the Labor Market | Opportunity Cost of Leisure Time | Works Used

Project description

This project aims to broaden the class labor economics knowledge by offering an alternative perspective on the wage effects on labor supply. What arose our interest in the subject matter was Prof. McPhail's statement that the income and substitution effect offset each other for men, while the substitution effect dominates for women. Surprisingly, on the aggregate, economics assumes that substitution effect dominates. This difference did not have any obvious explanation, and that intrigued us as young researchers. Thus, we found some valuable papers scrutinizing income and substitution effects, and men and women's reactions to fluctuations in the real wage. This led us to some interesting findings on the different amount of leisure and sleep genders need. Our sincere hope is that both genders will enjoy this project, as we answer our research question: "Why do men and women react differently to changes in the wage?" Thank you!

Labor Economics

Labor economics deals with the various processes that govern the labor market by explaining them and trying to find connections between the different forces in interaction. The labor market is a market based on the relationship between workers and employers. The way labor economics approaches the subject is by separately examining the supply of labor services provided by the workers and the demand of labor exerted by the employers, and then trying to understand the resulting pattern of wages, employment, and income.

Labor economics is an interesting subject matter because employment is major issue in all of economics and business, as well as an important factor for human happiness. The opposite phenomenon, unemployment, is probably the biggest problem affecting the working age population. It has direct and harsh consequences for the individual and the economy as a whole and that is why full employment (or the maximum reduction of unemployment) is a primary goal of most governments in the world today.

Description


Macroeconomic Aspect

In macroeconomics, the labor force is defined as the number of people employed plus the number unemployed but seeking work. The participation rate in the labor force is the number of people in the labor force as a percentage of the whole working age population. Unemployment is the difference of the labor force and the number of people currently employed; therefore the unemployment rate is determined by dividing the level of unemployment by the current labor force.

Employment level, unemployment level, labor force, and unfilled vacancies are classified as stock variables since they measure a quantity of labor at a point in time. Other variables, such as natural population growth, net immigration, new entrants in the labor force, and retirements from the labor force, are called flow variables. The latter measure quantity of labor over time and are responsible for changes in the labor force. Unemployment depends on entrance of people in the labor force looking for jobs, of employed people who lose their jobs and look for new ones, of outflows of people who find new employment, and of people who stop looking for jobs. Different types of unemployment are distinguished: frictional, structural, and cyclical.1

Criticism

Labor economics is a well developed science with a long tradition and years of background. However, there are critics that say that the commonly accepted approach overlooks important factors that affect employment and labor. One such phenomenon are social networks, which play quite an important role in the employment process. Personal connections are essential for both workers and employees as they are often what determines who gets a job and who does not, especially in more communitarian societies and cultures marked by a large power distance index. Another factor that the classical approach to labor in economics overlooks are all the employment decisions, particularly on the supply side, which can be quite determinate as well. Lastly, unpaid labor is also a part of the labor market that plays an important part in society but is not well taken account for by labor economics as there is no agreed upon method of incorporating it into standard analysis. All those factors suggest that labor market models might be somewhat biased. However, standard analysis is entirely sufficient for the purpose of this project.

1Wikipedia.com

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