Labor Economics

Labor Economics

The United States of America is a very wealthy nation. It will continue to grow and become richer each year. The main reason for its prosperity is because over 120 million Americans wake up each morning with the same intentions in mind; to go to work and earn a living. The United States provides a legal system and opportunities that allows people to work and save. Trying to determine how the labor market works and trying to understand its dynamics is the means of explaining labor economics. Labor economics examines the suppliers and demanders of labor services. The suppliers are more commonly known as the workers and the demanders are more commonly known as the employers. Labor economics seeks to understand the resulting pattern of wages, employment, and income. Labor economics investigates the problems of the market for labor and analyzes the demand and supply sides of the market to achieve a better understanding of the effects of private decisions and various government programs.

Labor economics is the application of microeconomic and macroeconomic techniques. Microeconomic techniques observe individuals in the labor market. Economists spend a great deal of their time analyzing micro-data on individuals, specifically education, occupations, wages, labor supply, and marital status.

Macroeconomics looks at the relationship among various markets; such as labor, commodities, capital and foreign trade. Macroeconomics examines how these

relationships influence variables such as employment, participation, income and gross domestic product. To determine how the labor market functions, there are three important parts to examine; wages, employment/unemployment, and income.

Economists describe wages not only as a cash compensation for a job provided, but for any compensation for a job performed. In the United States, wages are set by either the market forces, or by collective bargaining. Collective bargaining is when a labor union tries to negotiate on the workers’ behalf. However, there is a specific minimum wage act that employers must follow, which is the Fair Labor Standards Act. This act requires a minimum wage at the federal level, even though states and cities can set their own higher minimum. Depending on the different traditions and structures of the economies around the world, wage rates can be either the product of market forces or they can be influenced by tradition, social structure and seniority. Many countries have created a statutory minimum wage rate which prevents the exploitation of low paid workers.

Employment is a contract between the employer and the employee. The employer has the intentions of creating profits, whereas the employee contributes labor to the enterprise, usually in return for payment of wages. In America, the employment contract is considered to be “at will”, which means that both the employer and employee are allowed to end the employment at any time. The participation rate is made up of the number of people in the labor force divided by the size of the adult population. Those who are not employed, and are not seeking employment, are more commonly known as the unemployed. Economists define the unemployment level as the labor force less the

number of people currently employed. The unemployment rate is defined as the level of unemployment divided by the labor force. Unfortunately, there are many negative affects of unemployment. Unemployment often results in the lack of self esteem. The inability to pay bills, purchase necessities and maintain the typical lifestyle of those employed, will inevitably create a lot of stress. Increasing unemployment raises both the crime and suicide rate, and encourages poor health. Since unemployment insurance in the United States represents approximately 50% of the income once received on the job, the unemployed individual is left with no choice but to turn to welfare programs and eventually accumulate debt by bank loans or informal debt from family and friends. Unemployed people also decrease their spending, since they do not have a steady flow of