Page Overview

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 statemnt 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 the 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 the level of unemployment divided 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.

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¹Wikipedia.com