Introduction to Labor Economics

1
Introduction to Labor Economics

• Chapter 1

2
The study of labor economics requires a solid
foundation in microeconomics.
Review material may be found at http//www.oswego
.edu/kane/eco101.htm
3
Microeconomics background

• The study of labor economics requires a solid
  foundation in microeconomics
• Review material may be found at
  http//www.oswego.edu/kane/eco101.htm

4
Labor market vs. other markets

• labor services are rented, not sold,

5
Labor market vs. other markets

• labor services are rented, not sold,
• labor productivity is affected by pay and working
  conditions,

6
Labor market vs. other markets

• labor services are rented, not sold,
• labor productivity is affected by pay and working
  conditions, and
• the suppliers of labor care about the way in
  which the labor is used.

7
Positive vs. Normative Economics

• Positive economics - an attempt to describe how
  the economy operates using the scientific method.

8
Positive vs. Normative Economics

• Positive economics - an attempt to describe how
  the economy operates using the scientific method.
• Normative economics - relies on value judgments
  to evaluate the overall functioning of the
  economy.

9
Positive economics

• abstraction

10
Positive economics

• abstraction
• ceteris paribus assumption

11
Positive economics

• abstraction
• ceteris paribus assumption
• test of model based on predictions, not
  assumptions

12
Fundamental positive economic concepts

• scarcity

13
Fundamental positive economic concepts

• scarcity
• rational self-interest

14
Fundamental positive economic concepts

• scarcity
• rational self-interest
• utility maximization

15
Fundamental positive economic concepts

• scarcity
• rational self-interest
• utility maximization
• profit maximization

16
Normative economics

• interpersonal comparisons of utility are
  impossible

17
Normative economics

• interpersonal comparisons of utility are
  impossible
• Pareto improvement

18
Normative economics

• interpersonal comparisons of utility are
  impossible
• Pareto improvement
• Pareto efficiency (aka Pareto optimality)

19
Normative economics

• interpersonal comparisons of utility are
  impossible
• Pareto improvement
• Pareto efficiency (aka Pareto optimality)
• problems with the Pareto optimality criterion

20
Markets and Pareto optimality

• under ideal conditions, markets result in Pareto
  efficient outcomes

21
Types of Market failure

• imperfect information,

22
Types of Market failure

• imperfect information,
• transaction barriers,

23
Types of Market failure

• imperfect information,
• transaction barriers,
• price distortions,

24
Types of Market failure

• imperfect information,
• transaction barriers,
• price distortions,
• the nonexistence of markets when externalities
  are present,

25
Types of Market failure

• imperfect information,
• transaction barriers,
• price distortions,
• the nonexistence of markets when externalities
  are present,
• public goods,

26
Types of Market failure

• imperfect information,
• transaction barriers,
• price distortions,
• the nonexistence of markets when externalities
  are present,
• public goods, and
• capital market imperfections.

27
Equity vs. Efficiency

• Attempts to make market outcomes more equitable
  often results in the loss of economic efficiency.