Introduction to Labor

Economics

Chapter 1
The study of labor economics requires a
solid foundation in microeconomics.

Review material may be found at:

http://www.oswego.edu/~kane/eco101.htm
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
Labor market vs. other
markets
 labor services are rented, not sold,
Labor market vs. other
markets
 labor services are rented, not sold,
 labor productivity is affected by pay and
working conditions,
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.
Positive vs. Normative
Economics
 Positive economics - an attempt to
describe how the economy operates
using the scientific method.
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.
Positive economics
 abstraction
Positive economics
 abstraction
 ceteris paribus assumption
Positive economics
 abstraction
 ceteris paribus assumption
 test of model based on predictions, not
assumptions
Fundamental positive economic
concepts
 scarcity
Fundamental positive economic
concepts
 scarcity
 rational self-interest
Fundamental positive economic
concepts
 scarcity
 rational self-interest
 utility maximization
Fundamental positive economic
concepts
 scarcity
 rational self-interest
 utility maximization
 profit maximization
Normative economics
 interpersonal comparisons of utility are
impossible
Normative economics
 interpersonal comparisons of utility are
impossible
 Pareto improvement
Normative economics
 interpersonal comparisons of utility are
impossible
 Pareto improvement
 Pareto efficiency (Pareto optimality)
Normative economics
 interpersonal comparisons of utility are
impossible
 Pareto improvement
 Pareto efficiency (aka Pareto optimality)
 problems with the Pareto optimality
criterion
Markets and Pareto optimality
 under ideal conditions, markets result in
Pareto efficient outcomes
 Types of Market failure
 imperfect information,
 Types of Market failure
 imperfect information,
 transaction barriers,
 Types of Market failure
 imperfect information,
 transaction barriers,
 price distortions,
 Types of Market failure
 imperfect information,
 transaction barriers,
 price distortions,
 the nonexistence of markets when
externalities are present,
 Types of Market failure
 imperfect information,
 transaction barriers,
 price distortions,
 the nonexistence of markets when
externalities are present,
 public goods,
 Types of Market failure
 imperfect information,
 transaction barriers,
 price distortions,
 the nonexistence of markets when
externalities are present,
 public goods, and
 capital market imperfections.
Equity vs. Efficiency
 Attempts to make market outcomes
more equitable often results in the loss
of economic efficiency.