Republic of the Philippines

BATANGAS STATE UNIVERSITY

The National Engineering University
Pablo Borbon Campus
Rizal Avenue Ext., Batangas City, Batangas, Philippines 4200
Tel Nos.: (+63 43) 980-0385; 980-0387; 980-0392 to 94; 425-7158 to 62 loc. 1124
E-mail Address: cabeihm.pb@g.batstate-u.edu.ph | Website Address: http://www.batstate-u.edu.ph

College of Accountancy, Business, Economics and International Hospitality Management

Labor Economics
• Labor economics is the study of the labor force as an element in the process of production.
• The labor force, or currently active population, comprises all persons who fulfill the
requirements for inclusion among the employed, it also refers to the available human
resources, whether employed or unemployed.
• The Labor Market is the place where workers and employees interact with each other. In the
labor market, employers compete to hire the best, and the workers compete for the most
satisfying job. In addition to being a platform for job seekers and employers, the labor market
also serves as a reflection of broader economic conditions and societal trends. The evolving
nature of work, including the rise of remote and flexible employment arrangements, further
influences the dynamics of the labor market, shaping how workers and employers engage with
each other.
• In the free market, all the other options, labor markets, capital markets, and product markets,
are considered as the firm's operations.
• The labor market is the place where workers and employees interact with each other, and it is
where employers compete to hire the best workers, while workers compete for the most
satisfying job.
• Seasonal unemployment is characterized by being out of work because of the changing
seasons.
• Underemployment refers to a labor problem where a worker is employed, but the job only
requires skills or expertise levels that are lower than his/her level.
• Labor Market is the mechanism through which workers and jobs are matched.
• The market that allocates workers to jobs and coordinates employment decision is the labor
market, which could be:
-national labor market
-regional
-local
-external
-internal labor market
-primary
-secondary
• Consumer Price Index refers to an index derived by determining the price of a fixed bundle of
consumer goods and services.
• The wage rate is the price of labor per working hour.
• Wage refers to the payment for a unit of time.
• The nominal wage is what workers get paid per hour in current dollars.
• The real wage is the hourly rate of pay adjusted for inflation. Real wages take into account
inflation, so show how much purchasing power a pay packet has in a way that's comparable to
previous years.
• Earnings refers to wages multiplied by the number of time units (typically hours) worked.
• Employee Benefits can be either payments in kind or deferred
• Payments in kind are employer-provided health care, health insurance, and paid vacation time
• Deferred payments refer to employer-financed retirement benefits.
• Total compensation consists of earnings plus employee benefits.
• Income is received by a family including earnings, benefits, and unearned income and is the
total command over resources of a person or family during some time.
• Employers, whose decisions about the hiring of labor are influenced by conditions in all three
markets, are on the demand side of the labor market.

Leading Innovations, Transforming Lives, Building the Nation

 Republic of the Philippines
BATANGAS STATE UNIVERSITY
The National Engineering University
Pablo Borbon Campus
Rizal Avenue Ext., Batangas City, Batangas, Philippines 4200
Tel Nos.: (+63 43) 980-0385; 980-0387; 980-0392 to 94; 425-7158 to 62 loc. 1124
E-mail Address: cabeihm.pb@g.batstate-u.edu.ph | Website Address: http://www.batstate-u.edu.ph

College of Accountancy, Business, Economics and International Hospitality Management

• Workers and potential workers, whose decisions about where (and whether) to work must
take into account their other options for how to spend time, are on the supply side of the labor
market.
• The income effect suggests that if income increases while wages and preferences are held
constant, the number of leisure hours demanded will rise.
• The substitution effect is an effect where higher wages imply higher costs and, usually, higher
product prices, and it states that as wages increase, employers have incentives to cut costs by
adopting technology that relies more on capital and less on labor.
• An increase in the overall wage level causes the labor demand curve to shift upwards and to
the right.
• An increase in the quantity demanded of the product that the labor produces will shift the labor
demand curve to the right.
• Law of One Price is the economic principle that suggests workers who are of equal skills within
occupations will receive the same wage – there will be no wage differentials.
• The characteristics of indifference curves include being negatively sloped, not intersecting, and
consumer preferences being usually northeast on the higher or highest indifference curve.
However, they are not necessarily concave to the origin.
• Indifference curves show the various combinations of money income (or goods and services)
and the hours of leisure/work per day that will yield the same level of happiness.
• If the population decreases, the supply of labor decreases, and the labor supply curve is shifted
to the left.
• A person's discretionary time (16 hours a day) can be spent on working for pay to derive
income for consumption or on leisure.
• Costs of job search/mobility make the supply curve upward-sloping and not horizontal as
assumed if mobility or job search across employers is not costless.
• The cost included in a job search includes:
(a) application – printing résumés and postage
(b) interview – buying expensive clothes for the interview and roundtrip fares
(c) travel – hiring movers if employed
(d) psychological costs – missing friends and family members.
• Monopsonistic labor markets have only one buyer/employer of labor in the labor market.
• A profit-maximizing firm will stop hiring if the marginal external labor cost (MEL) exceeds the
wage.
• A person's discretionary time can be spent 16 hours a day which can be divided into working
for pay to derive income (Y ) for consumption, and (b) on leisure (L).
• Employers incur explicit and implicit training costs if the decision is to train a worker after
hiring. There are two types of training that employers can provide: general training and
specific training.
• General Training – Teaches workers skills that can be used to enhance their productivity with
many employers – skills are easily transferable – thus paying for general training can be a risky
investment for an employer.
• Specific Training – Teaches workers skills that increase their productivity only with the
employer providing the training – skills are firm-specific and not transferable – thus employers
have stronger incentives to invest in specific training.

Leading Innovations, Transforming Lives, Building the Nation