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Economics for Leaders

Economics for Leaders. Lesson 5: Labor Markets. Labor Markets. Scarcity forces us to choose and every choice has an opportunity cost. Open markets are a key institution for fostering economic growth and improving standards of living . Buying/Selling Labor…… How do labor markets work?. Why?

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Economics for Leaders

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  1. Economics for Leaders Lesson 5: Labor Markets

  2. Labor Markets • Scarcity forces us to choose and every choice has an opportunity cost. • Open markets are a key institution for fostering economic growth and improving standards of living. • Buying/Selling Labor…… • How do labor markets work?

  3. Why? What will you gain? What will you give up? What do you want to be when you grow up?

  4. Do you understand the statistics you see reported in the news? Prove it! In the News

  5. Labor Market Terminology • labor force • # of people employed or seeking employment • employment • # of people that are employed • unemployment • # of people seeking employment, but not working • Data available from US Bureau of Labor Statistics

  6. Labor Market Terminology • employment rate • % of the labor force that is employed • unemployment rate • % of the labor force that is unemployed • Data available from US Bureau of Labor Statistics

  7. Unemployment • cyclical: economic fluctuations • structural: mismatch of skills to jobs • frictional: relocation, search time, temporary • seasonal: time of year • the natural rate of unemployment • expansion: unemployment ↓ • recession: unemployment ↑

  8. Unemployment • What is the current UE rate in the US? • Is it high or low historically?

  9. U.S. UE Rate Through June 2014: www.bls.gov/data June 2014 UER = 6.3%, down from over 10% in early 2010

  10. U.S. UE Rate 1980s: www.bls.gov/data Reached a high of over 11% in early 1983 then declined

  11. U.S. UE Rate 1990s: www.bls.gov/data Reached a high just over 8% in early 1992, then declined

  12. U.S. UE Rate 2000s: www.bls.gov/data Small recession in 2002-03, severe recession 2008-10

  13. U.S. UE Rate: www.bls.gov/data

  14. U.S. UE Rate: www.bls.gov/data

  15. U.S. UE Rate: www.bls.gov/data

  16. Labor Markets • Voluntary Transactions → Gains From Trade • Firms • hire factors of production, produce G&S, earn profit • when would a firm agree to hire a worker? • labor demand (law of demand) • Households • sell factors of production, earn income, buy G&S • when would an individual agree to sell their labor? • labor supply (law of supply)

  17. Labor Markets • Labor Demand • If the production of a worker is of great value to society, then the wage will tend to be high. • Labor Supply • If workers have few alternative employment options, the wage will tend to be low. • If your skill is not unique, the wage will tend to be low.

  18. Demand for Labor isDerived Demand • There is only a demand for laborers if there is demand for the goods and services those laborers produce.

  19. Derived Demand • Demand for bullfights? NO • Then NO demand for matadors! • Demand for Pizza? YES • Demand for Pizza Cooks? YES

  20. Textiles

  21. Market for Kites Price Supply $20 Demand Quantity 7500

  22. Market for Kite-Makers Wage Supply $8/hr Demand 0 Quantity 75

  23. What if there is bad weather or abnormally calm winds? • What happens in the kite market?

  24. Market for Kites What happens to total revenue in the kite industry? How will this affect the labor market for kite workers? Price Supply $20 $17 Demand 0 6300 7500 Quantity

  25. Market for Kite-Makers Wage How will this affect kite workers? Supply • Laid off • Hours cut • Wage cut • Benefits cut $8/hr $7/hr Demand 0 Quantity 65 75

  26. Suppose instead that it’s a very windy summer, or the national kite festival is scheduled in the area?

  27. Working Women • Why do more women choose to attend college today compared to the 1950s or 1960s? • Opportunity Cost

  28. Use Economic Reasoning Tools to Prepare for the Labor Market • Derived Demand: • Demand in the market for what you produce is an important determinant of employability and wages. • Productivity: • Education, training and experience • Human Kapital • Infrastructure • Technology, machinery and equipment • Physical Kapital

  29. BLS Table 6Growing Occupations: 2006-2016 • Network systems and data communications analysts • Computer software engineers • Computer systems analysts • Environmental science and protection technicians • Personal finance advisors • Registered nurses • Home care aides • Health care aides • Medical assistants • Pharmacy technicians • Gaming surveillance officers and investigators

  30. BLS Table 8 Declining Occupations: 2006-2016 • Store clerks • Cashiers, except gaming • File clerks • Farmers and ranchers • Telemarketers • Sewing machine operators • Photographic processing machine operators • Mail clerks, mail machine operators (non postal service) • Postal service mail sorters, processors, and processing machine operators

  31. Technology& Productivity

  32. Technology& Productivity

  33. Technology& Productivity

  34. Demand for Labor is Derived Demand Superstars! And Other High Earners

  35. $150 M

  36. $150 M

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