Labor Economics

Essentials

Khalig Ilyasov
 Unique features of
Labor market (LM)
• Labor is embodied with the sales: labor is
inseparable from the Labor force (LF). Affect of
sociological and cultural factors.
• Long term nature of employment relationship.
Affect of wage rates changes.
• Quality of LF and their demand: skills and
qualification of LF.
• Multiplicity of LM: markets of different sectors.
Wages in agriculture, medicine, teachers.
Regional and central markets.
 LM OUTCOMES

• Composition of Labor Supply

- changes in population
- proportion of population willing to work
- total hours of work
- participation of male and female workers
- level of education
 LM OUTCOMES

• Composition of Labor Demand (LD)

- skills and qualification of LF
- regional LM: male and female LF
- world LM: white and blue color workers
 LM PROCESSES

Supply of labor
Demand for goods
HOUSEHOLDS

Product Labor
Market Market

? ?
BUSINESS FIRMS
LM PROCESSES

• LS is elastic when LF gets maximum

satisfaction from the wages, salaries,
earnings, etc.
• LM system solves the desires of LF and
business firms through wage rates and
mobility of LF
• Shapes of LS and LD curves
LM and institutional forces

• Government:
- Influence to the minimum wage
- State programs on EMPLOYMENT (Employment
strategy of AR)
- European Social Charter
• Trade Unions (strikes)
• Tripartite agreements (common decision)
Evaluation of LM theory

• Neoclassical school
- Founders: David Ricardo and Alfred
Marshall. XIX c.
- Main focus: wage rates and LF allocation
through market forces
- Main assumptions: human being as
economic man
Neoclassical school

• An individual is interested in maximizing

action of his welfare.
• An individual is rational.
• An individual has rational choice of the
best.
• An individual is independent from others.
• LM is a part of general economic theory.
• Equilibrium in LM solves all the problems
Institutional school

• Founders: Thorstein Veblen, John

Common and Wesley Mitchell. 1920-1940

• Second wave of the school: John Dunlop,

Lloyd Reynolds and Clark Kerr. 1940-1960
Institutional school
• People can not always maximize their
satisfaction.
• People’s choice is less rational. Brain has a limit
to evaluate all alternatives.
• People’s choice are not independent.
• LM, TU, socio-cultural factors, Government
should be taken into consideration
• Strong affect of market forces.
• Average values rather than marginal values.
Perfect Labor Market

• LS and LD is at equilibrium point (regional

and national level)
• Labor mobility is effective in regional,
occupational, branch levels
• Equal work-equal payment principle
• Absence of long term unemployment
• Perfect competition principle
Perfect competition principles and
LM
• Production and services are standardized
• Price of labor and final production is competitive
• Individual can not affect total quantity and value
of S and D
• Employers and employees have all necessary
information about LM
• Individuals are free to enter and to leave LM
 LABOR SUPPLY (LS)

• LS depends on:
- hours of work provided. Preference
between leisure and work.
- Socio-cultural factors. Family structure.
Attitude and willing to work.
- quality and quantity of economically
active and non-active population.