LESSON-7-EDEV

LESSON 7
LABOR MARKET
Labor Market
Definition: The labor market refers to the supply of and demand for labor.
Also known as: The job market, it's based on the employees providing the
supply and employers providing the demand.
Importance: It's a major component of any economy and it's intricately
linked to markets for capital, goods, and services.
Components of the Labor Market
1. Labor Force: the number of individuals who are available to work in a

labor market.
2. Applicant Population: the people who are applying for a particular job
that suits their expertise and skills.
3. Applicant Pool: the actual number of people who initially signified their
interest in applying for a particular job by sending in their resume.
4. Individuals Selected: the individuals who've made it through the
screening process and have been hired for the job.
Labor Market Information (LMI)
Definition: Is basically everything there is to know about a specific labor

market including:
- Information about occupations and their locations
- Wages, supply, and demand
- Demographics
Labor Market in Microeconomics

- Individual wages and the number of hours worked in an hourly wage job
are two important microeconomic gauges.
Labor Market in Macroeconomics

- Unemployment rates and labor productivity rates are two important
macroeconomic gauges.
The Labor Demand Curve

- Is a graphical representation of how many workers are employers willing
to hire when the wage is set at a certain level.
Shifting the Curve:
- If the demand for labor increases, this is illustrated by a shift of the labor
demand curve to the right.
- If demand decreases, then the curve shifts to the left.
Relationship with Price:
Labor Market: When price increases, the quantity demanded increases.
Individual Employers: When price increases, the quantity demanded
decreases.
Inversely Proportional: The relationship between price and quantity
demanded is inversely proportional.
The Labor Supply Curve

- Reflects how workers' decision about leisure tradeoff respond to changes
in opportunity cost.
- Shifting the Curve: An upward sloping labor supply curve means that an
increase in the wages induces workers to increase the quantity of labor they
supplied.
-
- Relationship with Price:
- Labor Market: When price increases, the quantity demanded decreases.
- Individual Employers: When price increases, the quantity demanded
increases.
- Directly Proportional: The relationship between price and quantity
demanded is directly proportional.
Equilibrium in the Labor Market

- Determination: The labor supply and the labor demand determine the
equilibrium wage.
Shifting Equilibrium: Shift on demand or supply for labor cause the

equilibrium wage to change.
Marginal Product of Labor (MPL) and Value of the Marginal Product of

Labor (VMPL)
- MPL: Is the increase in the amount of output from an additional unit of

labor.
- Formula: MPL = ΔQ/ΔL or (Q2-Q1)/(L2-L1)
- Production Function: Gives the relationship of the input in terms of labor
and the amount of product obtained.
- VMPL: Is the marginal product of input multiplied by the market price of
the output.
- Formula: VMPL = MPL x P
Individual Earnings and Wages

- Derived Demand: If the demand for a certain good or service is booming,
more of it is produced and offered in the market, and ultimately increase in
wages.
- Efficiency Wages: Businesses that provide high wages to their employees,
compared to the market equilibrium.
- Minimum Wage: Is the price floor that ensures employees receive this
amount or more and employers are prevented from paying below this
amount.
International Immigration
- Impact: When people move between countries and become part of the
labor market of that country.
- Benefits: Include increased national output, enhanced specialization
especially with highly skilled immigrants, and provides net economic benefit
to the country.
- Disadvantages: Include the brain drain from the country of origin.
Human Development Index (HDI)

- A statistic developed and compiled by the United Nations to measure
various countries' levels of social and economic development.
HDI Indicators
1. Life Expectancy at Birth: Long and healthy life is determined through the
life expectancy index.
- Formula: LEI = LE-20/85-20
2. Education Index: Acquired knowledge through mean and predicted
years of education is measured through the education index.
- Formula: El = MYSI+EYSI/2, (MYSI = MYS/15), (EYSI = EYS/18)
3. Income Index: Measures a decent standard of living through the GNI
index.
- Formula: II = In(GNlpc) - In(100)/In(75,000) - In(100)
- HDI Formula: HDI = 3√LEI X EI x II

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LESSON 7

Components of the Labor Market

1. Labor Force: the number of individuals who are available to work in a

Labor Market Information (LMI)

Definition: Is basically everything there is to know about a specific labor

Labor Market in Microeconomics

Labor Market in Macroeconomics

The Labor Demand Curve

The Labor Supply Curve

Equilibrium in the Labor Market

Shifting Equilibrium: Shift on demand or supply for labor cause the

Marginal Product of Labor (MPL) and Value of the Marginal Product of

- MPL: Is the increase in the amount of output from an additional unit of

Individual Earnings and Wages

Human Development Index (HDI)

- HDI Formula: HDI = 3√LEI X EI x II

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