Labor Markets

Key Terms

* Employment
* Marginal costs
* Income
* Unemployment
* Marginal benefits
* Labor supply

Lesson Objectives

In competitive labor markets, wages and benefits are determined by the supply and demand for labor. Employers' decisions reflect the opportunity cost of hiring one worker over another or of using labor rather than other resources like capital.
The demand for any particular worker is determined by employers estimates of his/her productivity. Economic fluctuations may create conditions in which some workers are unable to secure employment.

The U.S. government defines the unemployment rate as the percent of the labor force not working. By government definition, the "labor force" consists of those non-institutionalized individuals 16 years or older, who are working or actively seeking work.The U.S. government defines the employment rate as the percent of the non-institutionalized population over the age of 16 that is currently employed. The employment rate and the unemployment rate can be rising at the same time.

Government policies may impact the labor market by changing the incentives facing employers and/or workers.Trade policies, minimum wage, and other legislation affect employment both in the U.S. and abroad.

Recent legislation and laws currently being discussed include mandated employee benefits - benefits that the law requires employers to provide for their employees, regardless of how much the benefits are valued by employees. Some examples of currently mandated federal or state benefits are up to 12 weeks a year of unpaid, job-protected leave, with medical. Benefits for childbirth, adoption, or illness of the employee or family member. Protection against application of a mandatory retirement age and a minimum legal wage. An application to part-time employees of all benefits provided to full-time employees. "Reasonable accommodations" to a job or workplace to enable a person with a disability to perform a job.

1. Predict the effects of mandated employee benefits.
2. Is this ever in the interests of employers to provide any benefits?
3. Is it always in the interests of employees to have fringe benefits?
4. What groups would you expect to be better off as a result of mandated benefits and what groups would you expect to be worse off?

Definitions

Income - Rent, salaries, wages, interest, and profit; payment received by the owners of resources when those resources are used to make goods and services.

Labor supply - The numbers of individuals willing to work for various wages at a given point in time.

Marginal benefit - The increase in total benefit that results from producing, purchasing, or consuming an additional unit.

Marginal cost - The increase in total cost that results from producing an additional unit.

Unemployment - Term describing the condition of those non-institutionalized individuals, over the age of 16, who are actively seeking jobs and unable to find them.