chapter 2. the labor market: definitions, facts, and trends

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Chapter 2. The Labor Market: Definitions, Facts, and Trends.

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Chapter 2. The Labor Market: Definitions, Facts, and Trends . Labor Force Measures. (Adult) Civilian noninstitutional population . persons 16 years of age and older residing in the 50 States & DC not inmates of institutions (e.g., penal and mental facilities, homes for the aged), - PowerPoint PPT Presentation

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Page 1: Chapter 2.   The Labor Market:  Definitions, Facts, and Trends

Chapter 2. The Labor Market:

Definitions, Facts, and Trends.

Page 2: Chapter 2.   The Labor Market:  Definitions, Facts, and Trends

Labor Force Measures

• (Adult) Civilian noninstitutional population.– persons 16 years of age and older – residing in the 50 States & DC– not inmates of institutions (e.g., penal and

mental facilities, homes for the aged), – not on active duty in the Armed Forces.

Page 3: Chapter 2.   The Labor Market:  Definitions, Facts, and Trends

Labor Force Measures• Employed persons.

– during the reference week, • did any work at all (at least 1 hour) as paid

employees, • worked in their own business, profession, or on

their own farm, • or worked 15 hours or more as unpaid workers in

an enterprise operated by a member of the family, • all those who were not working but who had jobs

or businesses from which they were temporarily absent (vacation, sick)

Page 4: Chapter 2.   The Labor Market:  Definitions, Facts, and Trends

Labor Force Measures• Unemployed persons.

– no employment during the reference week, – available for work, except for temporary

illness, and made specific efforts to find employment some time during the 4-week-period ending with the reference week.

– Persons who were waiting to be recalled to a job from which they had been laid off need not have been looking for work to be classified as unemployed.

Page 5: Chapter 2.   The Labor Market:  Definitions, Facts, and Trends

Labor Force Measures• Labor force.

employed + unemployed• Unemployment rate.

Unemployed / Labor Force• Labor Force Participation rate.

Labor Force / Civ. NonInst. Pop• Employment-population ratio.

Employed/ Civ. Noninst. Pop. • Historical Data (Table B35 from Econ.

Report)

Page 6: Chapter 2.   The Labor Market:  Definitions, Facts, and Trends

1990/2011 DataAdult Civilian Noninst.

Population(189.164 m / 238.618m.)

Civilian Labor Force(125.840m / 153.617

m.)

Employed(118.793m./ 139.869 m.)

Unemployed(7.047m / 13.747m)

Not in labor force(63.324m / 85.001m)

Page 7: Chapter 2.   The Labor Market:  Definitions, Facts, and Trends

Labor force measures

1990 2011

Unemployment rate

Labor force participation rate

Employment rate

Page 8: Chapter 2.   The Labor Market:  Definitions, Facts, and Trends

1. Between 2010 & 2011, unemployment rate and employment rate both fell. How is this possible?

2. Based on the growth in Civilian Non-institutional Population between 2010 and 2011, how many jobs would have to be added over the year to keep the unemployment rate at 9.6% if LFPR

a. stayed at 2010 level (64.7%)?b. drops to 2011 level (64.1%)?c. rises to level prior to recession (66.0%)?

Page 9: Chapter 2.   The Labor Market:  Definitions, Facts, and Trends

• Start with U=10 million, E=90 million, CNIP=200 million

• What would happen to unempl rate, lfpr, and empl rate if– 10 million people out of labor force begin

looking for work and 6 million find jobs.– 1 million unemployed people become

“discourage” and quit looking for work?– 1 million unemployed people find new jobs?– 1 million employed people lose jobs and .5

million choose to retire while the other .5 million begin search for new jobs.

Page 10: Chapter 2.   The Labor Market:  Definitions, Facts, and Trends
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Variation in unemployment rates

• Employment Situation from bls.gov– Sex– Age– Education

• Why is there a correlation between these characteristics and unemployment rates?

• Unemployment and employment rates by state.

Page 14: Chapter 2.   The Labor Market:  Definitions, Facts, and Trends

• Wage rate X hours worked =Earnings

• Earnings + Benefits = Total Compensation

• Total compensation + unearned (non-labor) income = Total Income

Labor Earnings

Page 15: Chapter 2.   The Labor Market:  Definitions, Facts, and Trends

Earnings Measures

Page 16: Chapter 2.   The Labor Market:  Definitions, Facts, and Trends

Real versus Nominal Wages.

• CPIt =

• Real Waget =

• Nominal Wage represents earnings in current dollars.

• Real Wage represents earnings in constant (base year) dollars.

baseyearinbundleofCosttinbundleofCost*100

)100/(.

t

t

CPIWageNom

Page 17: Chapter 2.   The Labor Market:  Definitions, Facts, and Trends

Real versus Nominal Wages.• Issues with Indexing

– The bundle• Varies across people/time.• Evidence that CPI over-states growth in cost of living by 1 to

1.5 percent per year.– Quality of goods– Substitution effects

• Point in time adjustments versus across time– Comparable salary in city j = salary in city k * city j cpi

city k cpi

Page 18: Chapter 2.   The Labor Market:  Definitions, Facts, and Trends

Real versus Nominal Wages.• CPI data (available from BLS)• If a person earned $8 per hour in 1980, what

would yield the equivalent purchasing power in 2010?

• If a person’s nominal wage rose from $10 per hour in 2000 to $11 per hour by 2010, what happened to her real wage (in 1982-84 dollars)?

Page 19: Chapter 2.   The Labor Market:  Definitions, Facts, and Trends

Earnings Measures

• Cost of Living by City (ACCRA)• If a person moved from Cincinnati to San

Francisco and his earnings rose from $50,000 to $70,000, did his real earnings rise or fall?

• What are some of the problems with the Cinci/San Francisco comparison?

Page 20: Chapter 2.   The Labor Market:  Definitions, Facts, and Trends

Labor Demand

• Changes in wages (move along D-curve)– scale effect– substitution effect

• Changes in other factors (shift D-curve)– demand for product

• scale effect, no substitution effect– supply of other inputs (e.g. capital)

• scale effect and substitution effect

Page 21: Chapter 2.   The Labor Market:  Definitions, Facts, and Trends

Labor Demand

• Market, Industry, and Firm Demand.– different ways of measuring labor demand.

• Long run versus short run demand.– substitution effects tend to be larger in the

long run, making labor demand more elastic in the long run.

Page 22: Chapter 2.   The Labor Market:  Definitions, Facts, and Trends

Labor Supply• Labor supply curve.

– Market supply curve: upward sloping.– Firm supply curve: horizontal in competitive market.

• Factors shifting labor supply:– population.– alternative opportunities (other employment,

nonemployment)– taxes– non-pecuniary aspects of job (fringes, risk, night

shifts, etc.)

Page 23: Chapter 2.   The Labor Market:  Definitions, Facts, and Trends

Labor Market Equilibrium

• If wage is below equilibrium: shortage.• If wage is above equilibrium: surplus

(unemployment).• Shortages put upward pressure on wages.

Surpluses put downward pressure on wages.

Page 24: Chapter 2.   The Labor Market:  Definitions, Facts, and Trends

Labor Market Equilibrium

• Effect of – Increased population– Increased tax on employers– Increased tax on employees– Cheaper capital– Cheaper imports (consumer versus

intermediate goods)– Increased demand for product