labor, employment & unemployment.2016mid

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LABOR, EMPLOYMENT &UNEMPLOYMENT

2/Asst.Prof.Teresita Balgos )(



Outline

• Labor, Labor Force, Employment, Labor Market

• Determinants of Employment

• Determinants of the Demand for Labor

• Determinants of Labor Supply

• Determinants of Wages

• The Wage System

• Unemployment




• Labor is one of the resources used inproduction, making the goods andservices we need. It is also theaggregate of all human physical andmental effort.

• Labor Force is the number of peoplein work or actively seeking for paidemployment and are available to startfor work.

• Employment provides most of us withthe incomes we need to purchasegoods and services




The Production Side of LaborPercent of Employed by Industry

0

10

20

30

40

50

60

1900 1910 1920 1930 1940 1950 1960 1970 1980

%

E

m

p

l

o

y

e

d

Year

Agriculture Manufacturing Non-government services Governmen2/Asst.Prof.Teresita Balgos )(



20th Century Trends

• Large drop in % employment inagricultural sector over century

• Large drop in % employment inmanufacturing sector over endof century

• Large increase in service sector% employment

• Farms have become moreproductive, requiring less la

• Increases in population gravnon-farm sector, decreasing

remaining on the farm




The Income Side of LaborGlobal Unemployment Rates




Labor Force Participation Rate

Changes by gender:

• More women have entered the labor force

• Men staying as students longer, becoming retirees earlier and living longer, a

taking over homemaker responsibilities




1. Level of economic activity

2. Structural changes : change in the taste by consumer, new are introduced, domestic goods are displaced by imports, tchanges

3. Change in occupation or residence

4. Instructional restrictions or barriers : minimum wage, restrentry by labor union

5. Seasonal industries6. Labor composition

7. Educational attainment

8. Demographic factors

Determinants of Employment




DETERMINANTS OF DEMAND FOR LABOUR

• Wage Rate

• Productivity of Labour

• Price of Output

• Substitutability of Labour

with other factors ofproduction




DETERMINANTS OF SUPPLY FOR LABOUR

• The Number of births

• The number of deaths

• The number of people migraof the area

• The number of people who cat home and look after for t

• The Number of people at sch

• The number of people in fur

• The number of people who a




Production Function

Q = f (K, L)

• Demand for Labour : Derived Demand

• The substitution Effect of Labour : if thewage rate falls, employers will employ mlabour because it is cheaper

• The Income Effect of Labour: if the wagerate falls, employers will employ more

labour because it leaves more budget tospend




Wage Rate Determination In the LabourMarket

• Demand

• Supply

• Equilibrium Wage Rate

• Disequilibrium Wage Rate




Equilibrium Wage Rates

• Is the wage rate at which the quantity of labour demanded equathe quantity of labour supplied




Disequilibrium Wage Rate

The market wage is greater thanthe equilibrium wage

The market wage is lesser thathe equilibrium wage

Reasons ( excess supply oflabour, workers will be unemployedbecause of the excess number ofworkers thus wage rate will fall)

• Workers realizing they are or maybecome unemployed, will accept lowerwage rates, in an effort to make theirservices more attractive to employers

• Employers, realizing there areunemployed workers, will offer toemploy workers at a lower wage rate

• Reasons ( excess supply oflabour, workers will be highly soughafter, because there is shortage ofworkers)

1. Employers finding themselves una

to employ as many workers as thewould like, will offer to employworkers at higher wage rates in aattempt to attract more workers

2. Workers, realizing they are beingsought after by employees, willbegin to ask for higher wage ratefor their services




The market wage is lesser than the equilibrium wage

• Only when the market wage rate equals to theequilibrium wage rate is there neither excessdemand for labour nor excess supply of labour.Hence there are neither unemployed workers or

shortage of workers




Unemployment




Key Issues

• The meaning of unemployment

• Different types of unemployment

• Consequences of unemployment

• Unemployment and economic growth

• Recent trends in UK unemployment• Full employment




Measuring Unemployment

• A Working Definition of Unemployment• People able, available and willing to find and actively seeking work – but not emplo

• The unemployed are included in the laboforce

• An involuntary idleness on the part othose who have failed to findunemployment or who have lost theilatest jobs, but are able to work, andlooking for work 2/Asst.Prof.Teresita Balgos )(



Measuring Unemployment

• The Labour Force Survey (ILO measure)• An internationally agreed standard measure of

unemployment

• Must have actively sought work in the previousfour weeks and be available to start workimmediately

• Higher figure than the claimant count –approximately half a million higher

• Higher because there are limits on who canclaim unemployment benefit – so the truelevel of unemployment is higher than theofficial figures suggest




LABOR FORCE and UNEMPLOYMENT• Labour Force- Population 15 years old and over who

contributes to the production of goods and services inthe country

• Includes either employed or unemployed; and thosewho are neither employed or unemployed

• Participation Rate- The percentage of the entirelabour force population that makes up the labour force

Participation rate = Labour Force x 100

Labour Force Population

•

• Ex. In 1993 labour force was 13.946 million and thelabour force population was 21.392 million

65.2% = 13 946 000 x 100

21 392 000




• The Official Unemployment Rate- Thenumber of unemployed people in the labourforce as a percentage of the entire labourforce

•

• Ex. The 1993 Labour force of 13.946 peoplewas composed of 12.383 million people whowere employed and 1.562 million peoplewho were not.

Unemployment Rate = UELFR/Labour Force x100

• 11.2%= 1 562 000 x 100

13 946 000


TABLE 3.6 - Employed Persons by Region and Major Industry Group,



Region VI - Western Visayas 3,008 3,011 3,182

Agriculture, Hunting and Forestry 962 928 1,004

Fishing and Aquaculture 177 180 202

Mining and Quarrying 7 9 11Manufacturing 163 152 156

Electricity, Gas, Steam and Air Conditioning Supply 6 9 9

Water Supply; Sewerage, Waste Management and Remediation

Activtities 4 4 4

Construction 152 164 198

Wholesale and Retail Trade; Repair of Motor Vehicles and

Motorcycles 522 525 535

Transportation and Storage 207 209 207

Accommodation and Food Service Activities 122 135 136

Information and Communication 19 18 18

Financial and Insurance Activities 29 30 31

Real Estate Activities 9 7 5

Professional, Scientific and Technical Activities 12 10 9

Administrative and Support Service Activities 48 52 58

Public Administration and Defense; Compulsory Social Security 162 163 173

Education 107 110 106

Human Health and Social Work Activities 35 39 40

Arts, Entertainment and Recreation 18 19 20

Other Service Activities 202 204 215

Activities of Households as Employers; Undifferentiated Goods

and

Service-producing Activ ities of Households for Own Use 45 42 44Activities of Extraterritorial Organizations and Bodies - - -

TABLE 3.6 Employed Persons by Region and Major Industry Group,

Philippines: 2012 - 2014 (Continued)

(Based on Past Week Reference Period; In Thousands)

REGION AND MAJOR INDUSTRY GROUP 2012 2013 2014


TABLE 3 6 Employed Persons by Region and Major Industry Group




Philippines: 2012 - 2014



PHILIPPINES 37,600 38,118 38,6

Agriculture, Hunting and Forestry 10,660 10,429 10,4

Fishing and Aquaculture 1,432 1,407 1,3

Mining and Quarrying 250 250 2Manufacturing 3,112 3,159 3,2

Electricity, Gas, Steam and Air Conditioning Supply 89 94

Water Supply; Sewerage, Waste Management and Remediation Activtities 59 60

Construction 2,232 2,373 2,5

Wholesale and Retail Trade; Repair of Motor Vehicles and Motorcycles 6,864 7,105 7,2

Transportation and Storage 2,617 2,734 2,6

Accommodation and Food Service Activities 1,571 1,607 1,6



Real Estate Activities 170 173 1Professional, Scientific and Technical Activities 189 194 2

Administrative and Support Service Activities 937 1,016 1,0

Public Administration and Defense; Compulsory Social Security 1,958 1,965 1,9

Education 1,200 1,226 1,2



Other Service Activities 2,149 2,189 2,1

Activities of Households as Employers; Undifferentiated Goods and

Service-producing Activities of Households for Own Use 566 524 5

Activities of Extraterritorial Organizations and Bodies 2 4




UNEMPLOYMENT :ISSUES, DIMENSIONS, AND ANALYSES

• Types of Unemployment

• 1. Normal Unemployment- Unemployment due to low or no demand for workers.

• 2. Frictional Unemployment- Unemployment due to being temporarily between jobs or lookingfirst job. It is a permanent feature of labour markets, represents about 3% of the labour force atimes.

• 3. Structural Unemployment- Unemployment due to a mismatch between people and jobs. Thi

unemployment occurs because of gradual changes in the economy. Long term adjustments in whow, and where products are produced cause such unemployment.

• 4. Technological Unemployment- Unemployment due to technology

• 5. Cyclical Unemployment- Unemployment due to the ups and downs of economies and businescausing unemployment to rise and fall.

• 6. Seasonal Unemployment- Unemployment due to the seasonal nature of some occupations anindustries 2/Asst.Prof.Teresita Balgos )(



Flows in the Labour Market

Employed

Labour force Unempl

Out of the

labour forceTaking

a job

Retiring

Temporarilyleaving

New hires

Recalls

Job-losers

Lay-offs

Quits

Discouraged

workers




PhilippinesJanuary 2015a/

(Excludes Region

VIII)

January 2014b/

(Excludes Region

VIII)

Population 15 years and over (in 000) 62,870 61,777

Labor Force Participation Rate (%) 63.8 63.8

Employment Rate (%) 93.4 92.5

Unemployment Rate (%) 6.6 7.5

Underemployment Rate (%) 17.5 19.5




Unemployment Rates in Selected Asian Countries

TABLE 41 - Unemployment Rates in Selected Asian Countries: July 2014 - December 2015

COUNTRY Periodicity2014 2015 p

Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov D

Indonesia Semi-annual 5.9 - - - - - 5.8 - - - - - 6.2 - - - -

Malaysia Monthly 2.8 2.7 2.7 2.7 2.7 3.0 3.0 3.2 3.0 3.0 3.1 3.1 3.2 3.2 3.2 3.1 -

Philippines Quarterly 6.7 - - 6.0 - - 6.6 - - 6.4 - - 6.5 - - 5.7 -

Singapore Quarterly 2.0 - - 2.0 - - 1.9 - - 1.8 - - 2.0 - - 2.0 -

South Korea Monthly 3.4 3.5 3.5 3.5 3.4 3.5 3.4 3.9 3.7 3.7 3.9 3.9 3.7 3.6 3.5 3.4 3.4 3

Thailand Monthly 1.0 0.7 0.8 0.8 0.6 0.6 1.1 0.8 1.0 0.9 0.9 0.8 1.0 1.0 0.8 0.9 0.9

China Quarterly 4.1 - - 4.1 - - 4.1 - - 4.1 - - 4.0 - - 4.1 -

Note: Data for other Asian countries cannot be found in the website used. If other website shall be used,

methodology may differ, thus, not comparable.p Preliminary.Sources of data: Philippine Statistics Authority,

Labor Force Survey.

http://www.tradingeconomics.com.




Types of Unemployment

• Seasonal• Regular seasonal changes in

employment / labour demand

• Affects certain industries more thanothers

• Catering and leisure

• Construction

• Retailing• Tourism

• Agriculture




Types of Unemployment

•Frictional

• Transitional unemployment due topeople moving between jobs: Includespeople experiencing short spells ofunemployment

• Includes new and returning entrants intothe labour market

•Imperfect information about availablejob opportunities can lengthen theperiod of someone’s job search




Structural Unemployment

• Structural• Arises from the mismatch of skills and

job opportunities as the pattern oflabour demand in the economy changes

• Occupational immobility of labour

• Often involves long-term unemployment

• Prevalent in regions where industries go

into long-term decline

• Good examples include industries such asmining, engineering and textiles




Philippine employment structure



Phili i 2012 2014






PHILIPPINES 37,600 38,118 38,6



Mining and Quarrying 250 250 2

Manufacturing 3,112 3,159 3,2

Electricity, Gas, Steam and Air Conditioning Supply 89 94









Professional, Scientific and Technical Activities 189 194 2Administrative and Support Service Activities 937 1,016 1,0


Education 1,200 1,226 1,2










Cyclical unemployment

• Cyclical (Keynesian)• There is a cyclical relationship

between demand, output,employment and unemployment

• Caused by a fall in aggregatedemand leading to a loss of realnational output and employment

• A slowdown can lead to businesses

laying off workers because theylack confidence that demand willrecover

• Keynes argued that an economycan become stuck with a low rateof AD and an economy operatingpersistently below its potential




Cyclical unemployment using AD-AS

General Price

Level

Real National Income

AD1

SRAS

P1

Y1

LRAS

Yfc

AD2

Y2

P2

Real Wage

Level

W1

E2

W2




Real Wage Unemployment

• Real Wage Unemployment• Created when real wages are maintained above their market clearing lev

leading to an excess supply of labour at the prevailing wage rate

• Some economists believe that unemployment can be created if the natiominimum wage is set too high




Recent examples of cyclical unemployment

• Recession in the UK in the early 1990s• Unemployment rose from 1.6 million in 1989 to 2.9 million in 1993

• The recent recession in UK manufacturing industry

• Slow growth and rising unemployment in Germany

• The end of full-employment for Japan during the last ten years




Economic and Social Costs of Unemploymen

• The private costs for the unemployed

• Loss of income

• Fall in real living standards

• Increased health risks• Stress

• Reduction in quality of diet

•

Social exclusion because of loss of work and income• Loss of marketable skills (human capital) and motivation

• The longer the duration of unemployment, the lower the chances offinding fresh employment - the unemployed become less attractive tpotential employers




Consequences of Unemployment (2)

• Economic Consequences for Businesses

• Negative consequences• Fall in demand for goods and services

• Fall in demand for businesses further down the supply chain

• Consider the negative multiplier effects from the closure of a majoremployer in a town or city

• Some positive consequences• Bigger pool of surplus labour is available – but still a problem if there

plenty of structural unemployment

• Less pressure to pay higher wages

• Less risk of industrial / strike action – fear of job losses – leading toreduced trade union power





• Consequences for the Government (Fiscal Policy)

• Increased spending on unemployment benefits andother income –related state welfare payments

• Fall in revenue from income tax and taxes onconsumer spending

• Fall in profits – reduction in revenue from

corporation tax• May lead to rise in government borrowing (i.e. a

budget deficit)





•Consequences for the economy as a whole

• Lost output (real GDP) from people being out of work – theeconomy will be operating well within its production frontier

• Unemployment seen as an inefficient way of allocating resourceslabour market failure?

• Some of the long-term unemployed may leave the labour forcepermanently – fall in potential GDP

• Increase in the inequality – rise in relative poverty




Policies to reduce unemployment

Demand and supply side approaches




Demand side Policies to Reduce Unemployment

• These are mainly measures to boost total labour demand (reduce cyunemployment)

• Lower interest rates (a monetary policy stimulus)

• A lower exchange rate (helps exporters)

• Lower direct taxes (fiscal stimulus to spending power)

• Government spending on major capital projects (e.g. improvtransport infrastructure)

• Employment subsidies (including the New Deal programme)reduce the cost to a business of employing additional worke

• Incentives to encourage flows of foreign investment in the Uparticularly in areas of above average unemployment




Supply-side policies to reduce Unemployment

•Supply-side policies

• These are measures to improve labour supply (reduce frictionstructural unemployment)

• Increased spending on education & training including aon “lifetime-learning”)

• Improved flows of information on job vacancies

•

Changes to tax and benefits to improve incentives• Measures designed to make the labour market more fle

workers have the skills and education that gives them iemployment options




Consequences of falling unemployment• The circular flow and the multiplier:

• Incomes flowing into households will grow

•

Falling unemployment adds to demand and creates a pmultiplier effect on incomes, demand and output.

• The balance of payments:

• When incomes and spending are growing, there is an indemand for imports. Unless this is matched by a rise inthe trade balance in goods and services will worsen




Consequences of falling unemployment

•Government finances:

• With more people in work paying income tax, national and value added tax, the government can expect a largrevenues and a reduction in social security benefits

• Inflationary effects

• Falling unemployment can also create a rise in inflatio

– particularly when the economy moves close to operatcapacity

• However this is not really a risk when the economy is crecession, since aggregate supply is likely to be highly because of a high level of spare capacity




Falling unemployment in the UK

• Demand factors• Sustained economic growth since 1992• Growth creates jobs to replace jobs lost in industries suffering from long

term decline• High levels of inward investment from overseas• Strong consumer demand and housing boom

• Supply factors• Extra investment in education and training• Britain now has a more flexible labour market than in the past – workers

have more adaptable skills• Employment laws have changed – easier for firms to take on extra worke

• E.g. growth of temporary and part time employment




Falling unemployment

Growth of service sector

has created many new

jobs

Foreig

New Deal – helping to

lower long-term

unemployment

Flexible labour market –

easier to create new jobs

Inc

Sustained economic

growth since 1992

The full-employment




Unemployment Misses ...

(1) Discouraged and other marginally attached workers who want to work and havegiven up looking for a job

(2) Individuals who are employed, but for less hours than desired during a week

• Taking these workers into account, the unemployment rate in August, 2002would increase from 5.7% to 9.5%




Can We Have 0% Unemployment?

• Economists believe that it is not possible

• Natural rate of unemployment: the normal rate of unemployment due to buifrictions and structures in the economy




Frictional Unemployment

• Frictional unemployment: Unemployment caused by the time it takes forworkers to search for the best job




Minimum Wage

• We know from microeconomic theory that this is a price floor

• Quantity labor supplied exceeds the quantity of labor demanded


Mi i W



Minimum WagePrice is wage, firms demand labor




Unions

• Perfect Competition: Many sellers, many buyers. No marketpower.

• Monopoly: One seller, many buyers. Seller has market power

• Monopsony: One buyer, many sellers. Buyer has market power t

drive the price down




Unions

• Unions can be seen as negatively colluding to gainmarket power in a manner similar to firms trying to seltheir products.

• In the presence of monopsony (one firm buying all thelabor), unions are often needed to group workers into asingle entity (monopoly) and thus shift some marketpower back to the workers.




Efficiency Wages

• Efficiency Wages: paying workers higher wages than theequilibrium amount in order to retain employees and receive abetter effort. Creates similar inefficiencies to a price floor.





TABLE 3.6 - Employed Persons by Region and Major Industry Group,Philippines: 2012 - 2014 (Continued)




Region VI - Western Visayas 3,008 3,011 3,182

Agriculture, Hunting and Forestry 962 928 1,004

Fishing and Aquaculture 177 180 202


Manufacturing 163 152 156

Electricity, Gas, Steam and Air Conditioning Supply 6 9 9

Water Supply; Sewerage, Waste Management and Remediation

Activtities 4 4 4

Construction 152 164 198

Wholesale and Retail Trade; Repair of Motor Vehicles and

Motorcycles 522 525 535

Transportation and Storage 207 209 207

Accommodation and Food Service Activities 122 135 136



Real Estate Activities 9 7 5Professional, Scientific and Technical Activities 12 10 9

Administrative and Support Service Activities 48 52 58

Public Administration and Defense; Compulsory Social Security 162 163 173

Education 107 110 106



Other Service Activities 202 204 215

Activities of Households as Employers; Undifferentiated Goods

and

Service-producing Activ ities of Households for Own Use 45 42 44

Activities of Extraterritorial Organizations and Bodies - - -









PHILIPPINES 37,600 38,118 38,6




Manufacturing 3,112 3,159 3,2Electricity, Gas, Steam and Air Conditioning Supply 89 94









Professional, Scientific and Technical Activities 189 194 2Administrative and Support Service Activities 937 1,016 1,0


Education 1,200 1,226 1,2










TABLE 10.2 - Labor Productivity by Region and Sector,

Philippines: 2012 - 2014 (Continued)(In Pesos)

MAJOR INDUSTRY GROUPAt Current Prices At Constant 2000 Prices

2012 r 2013 r 2014 2012 r 2013 r 2014

Region VI - Western Visayas ####### ####### ####### 85,834 88,646 87,96

Agriculture, Hunting, Forestryand Fishing 101,844 107,253 104,860 57,130 56,664 50,83

Industry 230,410 248,654 261,335 138,223 148,746 151,18

Services 153,987 164,208 173,525 95,852 98,309 100,93


TABLE 10.1 - Labor Productivity Measured in Terms of Gross Domestic

Product

Per Employed Person, Philippines: 1998 - 2014

(In Pesos)

Y E A R At Current Prices At Constant 2000 Prices



1998 110,877 124,926

1999 116,942 123,619

2000 130,435 130,435

2001 133,379 126,366

2002 139,656 127,026

2003 148,461 130,846

2004 161,972 135,2912005 175,711 138,683

2006 192,155 144,510

2007 205,385 149,830

2008 226,493 153,630

2009 228,919 151,086

2010 249,854 158,222

2011 261,033 158,911

2012 r 280,880 167,692

2013 r 302,804 177,084

2014 327,100 185,351

Notes: 1. Labor Productivity of the country is measured as theratio of Gross Domestic Product (GDP) to corresponding average

employment

for the year.

2. Labor productivity data for 2014 were computed

using employment data which excluded that of Leyte province.

3. Employment data used for 1998 - 2005 were based on the 1995

census-based population projections, while 2006 onwards were based

on the 2000 census-based

population projections.

r Revised.

Sources of basic data: Philippine Statistics Authority, National

Accounts of the Philippines and Labor Force Survey.

1/1


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