Labour economics

Week 1. Topic: Labour Market measures

Each of us must decide:
1) To work or not?
2) If yes, then how many hours to work?
The economywide labour supply is given by adding the work choices made
by each person in the population. Total labour supply depends on the fertility
decisions made by earlier generations (which determine the size of the
current population)
Objectives:
-study labour supply decisions: individuals seek to maximize their well-
being by consuming goods and leisure. Goods are purchased in the
marketplace. We must work in order to earn cash required to buy the desired
goods. The economic trade-off: if we don’t work, we can consume a lot of
leisure, but we have to do without the goods and services that make life
more enjoyable. If we do work, we will be able to afford many of these
goods and services, but we must give up some of our valuable leisure time.
-The model of labour-leisure choice isolates the person’s wage rate and
income as the key economic variables that guide the allocation of time
between the labor market and leisure activities.
1)Framework of “static” labour supply: the decisions that affect a person’s
labour supply at a point in time;
2)Framework of “dynamic” labour supply: the timing of leisure activities
change over life cycle.
-why women’s work propensity rose and hours of work declined? Do
welfare programs reduce incentives to work? Does a cut in the income tax
rate increase hours of work? And what factors explain the rapid growth in
the number of women who choose to participate in the labor market?

Measuring the Labor Force

The unemployment rate statistic is widely regarded as a measure of the
overall health of the US economy. The minor month-to-month blips in the
unemployment rate are a sign of either a precipitous decline in economic
activity or a surging recovery.
It is useful to review the various definitions of labor force activities that are
used by the BLS to generate its statistics.
The CPS classifies all persons aged 16 or older into one of 3 categories:
-employed;
-unemployed;
-out of the labor force.
To be employed, a worker must:
-have been at a job with pay for at least 1 hours or worked at least 15 hours
on a nonpaid job (such as a family farm).
To be unemployed, a worker must:
-be on a temporary layoff from a job;
-have no job but be actively looking for work in the four-week period prior
to the reference week .

A person participates in the labour force if she or he employed or

unemployed. The size of the labour force is given by:
LF=E+U
Note: the majority of employed persons (working at a job with pay) are
counted as being in the labour force regardless of how many hours they
work. The LF doesn’t say anything about the “intensity” of work!

The labor force participation rate gives the fraction of the population that is
in the labor force and is defined as:
Labour force
Labor force participation rate= Population
The employment rate gives the fraction of the population that is employed
Employed
Employment rate= Population
The unemployment rate gives the fraction of labor force participants who are
unemployed:
Unemployed
Unemployment rate= Labor force

The hidden unemployed

The BLS calculates an unemployment rate based on a subjective measure of
what it means to be unemployed.
Persons who have given up and stopped looking for work are not counted as
unemployed, but are considered as “out of the labor force”. At the same
time, some persons who have little intention of working at the present time
may claim to be “actively looking” for a job in order to qualify for
unemployment benefits.
The unemployment statistics can be interpreted in different ways. It is often
argued that during recessions, the official rate understates the depths of the
recession and economic hardships, because it is hard to find work, many
laid-off workers become discouraged with their job search activity, dropped
out of the labour market, and stopped being counted as unemployed. This is
army of hidden unemployed should be added to the pool of unemployed
workers.
Some argue that a more objective measure of aggregate economic activity
may be given by the employment rate. The employment rate simply
indicates the fraction of the population at a job. This statistic has the obvious
 drawback that lumps together persons who say they are unemployed with
persons who are classified as being out of the labor force (hidden
unemployed+ retirees, women with small children, and students enrolled in
school).
A decrease in the employment rate could then be attributed to either increase
in the unemployment or unrelated increases in fertility or school enrollment
rates.

Basic facts about Labor Supply

There was a slight fall in the labor force participation rates of men in the
twentieth century, from 80 percent in 1900 to 72 percent by 2009. The
decline is particularly steep for men near or above age 65, as more men
choose to retire earlier. The labor force participation rate of men aged 45 to
64, for example, declined by 11 percent age points between 1950 and 2009,
while the participation rate of men over 65 declined from 46 to 22 percent
over the same period. Moreover, the labor force participation rate of men in
their prime working years (ages 25 to 44) also declined, from 97 percent in
1950 to 91 percent in 2009. Note, however, that the labor force participation
rate of men in their retirement years has begun to increase in the past 20
years.
There also has been a huge increase in the labor force participation rate of
women. At the beginning of the century, only 21 percent of women were in
the labor force. As late as 1950, even after the social and economic
disruptions caused by two world wars and the Great Depression, only 29
percent of women were in the labor force. During the past 50 years,
however, the labor force participation rate of women has increased
dramatically. By 2009, almost 60 percent of all women were in the labor
force. It is worth noting that the increase in female labor force participation
was particularly steep among married women. Their labor force participation
rate almost doubled in recent decades, from 32 percent in 1960 to 61.4
percent in 2009.

These dramatic shifts in labor force participation rates were accompanied by

a sizable decline in average hours of work per week. Figure 2-1 shows that
the typical person employed in production worked 55 hours per week in
1900, 40 hours in 1940, and just under 34 hours in 2010.
There exist sizable differences in the various dimensions of labor supply
across demo graphic groups at a particular point in time. As Table 2-3
shows, men not only have larger participation rates than women, but are also
less likely to be employed in part-time jobs. Only 6 percent of working men
are in part-time jobs, as compared to 16 percent of working women. The
table also documents a strong positive correlation between labor supply and
educational attainment for both men and women. In 2010, 92 percent of
male college graduates and 80 percent of female college graduates were in
the labor force, as compared to only 74 and 48 percent of male and female
high school dropouts, respectively. There are also racial differences in labor
supply, with white men having higher participation rates and working more
hours than black men.
The decline in average weekly hours of work was accompanied by a
substantial increase in the number of leisure hours for both men and women.

The evidence suggests that changes in the economic environment- in wage

rates and incomes- can account for many of the observed shifts in labor
supply.

Факты свидетельствуют о том, что изменения в экономической среде

— в ставках заработной платы и доходах — могут объяснять многие из
наблюдаемых сдвигов в предложении рабочей силы.