Chapter 12 labor and employment

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  • 1. Labor and Employment
  • 2. refers to the exertion of human effort to acquire an income.Human effort includes physical and mental exertion. People use their brawn and muscles to earn a living.No labor is one hundred physical or mental.
  • 3. 1. Labor is perishable. Labor that iswasted is lost forever.This characteristic makes labor 2. Laborof and the individual areincapable being restored.inseparable. A man working forwages cannot separate his physicalself from his labor if he wants to enjoy 3. Labor supply does not changethe comforts of another room. quickly. The supply of labor increases steadily as population grows.
  • 4. 4. Most employable persons do notlike to move. Even if the demand forlabor is higher in some places, manypeople still prefer to remainunemployed. The following reasonsare cited:a. They want to stay close to their families;b. They are not aware of the demand for their services elsewhere;
  • 5. 1. Manual Labor – mostly involve the exertion of physical effort specially the use of brawn muscles. Examples: construction workers, dishwashers, farm workers2. Clerical Labor – considered next higher in order than manual labor. Although most parts of this is done with physical effort, the exertion is less with that of
  • 6. 3. Professional Labor – requires ahigher degree of intelligence. Collegedegree is a basic requirement. Someeven an advance degree. Requiressufficient training and experience.Examples:physicians, engineers, chemists, teachers, nurses, and others.4. The Labor of Management –Managers of all kinds and types which
  • 7. 5. The Labor of the Entrepreneur – Theentrepreneurs is the one who organizes thebusiness and sees to it that the businessbecomes stable. He is the one responsible forthe success or failure. He is rewarded withprofits and penalized with losses as aconsequence of decisions.6. The Labor of Inventors – Very importantingredient of economic development. Withoutthem, the world will be a dull place to live.Inventions like electrical lamp and the motorcar are only some of the outputs of scientists
  • 8. Suppliers of labor (i.e., the households)spend their time on the following activities:1. market activity, and 2. nonmarketactivity.- Households spend their time supplying labor to the market- If households spent time on leisure and nonmarket production activities like education and training
  • 9. Table 36Market, Nonmarket activity and returns Activity ReturnsMarket Immediate return in the form of incomeNonmarket Goods and services produced in the home Higher future
  • 10. Households will not just supply labor at anywage level. They are only willing to start doingit if a certain wage rate is offered by themarket. This rate is call Reservation Wage.Below reservation wage, households will notsupply labor.The quantity of labor supplied by thehouseholds is modified by two offsettingeffects of higher wage rate: 1. the substitutioneffect, and 2. the income effect.
  • 11. Substitution Effect – If there is anincrease in wage rates and the feel thatthe returns they get from doing nonmarketactivities are lower, they will tend to switchover some hours for market activity.Income Effect – When the householddecides to spend its money on leisure ornonmarket activity, it reduces the timeavailable for pursuing a market activity.This will result to a reduction of the
  • 12. The Backward-Bending Labor SupplyCurve – labor supply tends to increase as the wage rate rises but when households begin to have sufficient income, labor supply tends to decrease wage earners reduce the time they spend for work when they receive higher wages. This action bends the labor supply curve backwards, as
  • 13. Figure 50 The Backward-Bending Labor Supply CurveWageRange Units of Labor
  • 14. It is the total number of man hours (or mandays) hired by all firms in the economy. Thedemand for labor will depend on the realwage rate. Real Wage Refers to the purchasing power of the Rate nominal (or money) wage. The nominal wage rate is the amount in pesos paid to a worker for a unit of work.
  • 15. Even if the nominal wage rate increasesyearly, its real value will be smaller if theinflation rate is higher than the yearlyincreases in the nominal wage rates. Toillustrate, the following example is provided:The nominal wage rate in the year 2000was P200 per day and P210 in 2001. Ifprices of commodities increased by 5% from200 to 210, the real wage rate remainsunchanged if year 2000 was used as baseyear.
  • 16. Real Wage Rate = nominal wage index number of the overall pricelevelThus, if nominal wage is P210 per day andindex number is 1.05 (or 1.0 plus inflationrate)Then,Real Wage Rate = P210/1.05=200
  • 17. Labor Demand Curve- When the real wage rate increases, the quantity demanded for labor increases and vice-versa. (Table 37) & (Figure 51)
  • 18. Table 36 Figure 51 Real Quantity of The Demand Wage Labor 300 for Labor (1995 Demanded 250 pesos (Millions of Real per days per Wage 200 Rate day) year) 150 (1995A 250 1 pesos 100 per day)B 220 1.25 50C 130 1.5 0D 160 1.75 1 1.25 1.5 1.75 2 2.25E 130 2 Labor (Millions of daysF 100 2.25 per year)
  • 19. 1.Unemployment and Underemployment2.Inadequate wages3.Industrial and labor-management conflict4.Economic Insecurities
  • 20. Unemployment – occurs when a personwho is of working age (at least 15 yearsold), is willing and able to work butcannot find work.When underemployment is high, thesociety pays a high price in the form ofthe following:1. Lost output and income2. Depreciation of Human Capital3. Increase in Crime4. Loss of Human Dignity
  • 21. Underemployment – occurs when aperson works either part-time or full-timebut which in both cases receives very littlepay.According to Villegas, underemployment isthat the person who holds job below whathe is qualified for and below theoccupational level he aspires for.Example : A college graduate who worksas housemaid
  • 22. According to Tulao, Jr., there a fourgeneral factors which lead toUnderemployment1.Rapid growth of population2.Slow growth of the economy3.Technology used4.Lack of skills
  • 23. 1.Seasonal Unemployment2.Frictional Unemployment3.Structural Unemployment4.Cyclical Unemployment
  • 24. 1.Unemployment and Underemployment2.Inadequate wages3.Industrial and labor-management conflict4.Economic Insecurities
  • 25. Causes:1.Inflation – rise in the price of basic commodities and stationary level in wages2.Lack of skills -3.Too many dependents -
  • 26. 1.Unemployment and Underemployment2.Inadequate wages3.Industrial and labor-management conflict4.Economic Insecurities
  • 27. Strikes and Lockouts that causesphysical harm and death to somepeople when a worker is deprivedof wage and the employer to profit.
  • 28. 1.Unemployment and Underemployment2.Inadequate wages3.Industrial and labor-management conflict4.Economic Insecurities
  • 29. Workers are worried about futureconditions likelayoffs, dismissals, illnesses, accidents and even death. Then needfunds that would take care of theirneeds incase this will happen.Advanced countries have providedsolutions like free medical care andunemployment insurance.
  • 30. To attain acceptable levels ofemployment, efforts are undertaken toimprove human capital. This is done intwo ways: Education and Training.Education takes place before working,while Training is done when the personis already working.Expected result:Higher output and income
  • 31. Figure 52 AGE EARNINGS PROFILES OF WORKERS CEarnings With college(pesos peryear) B degree A Without college 18 22 degree 26 30 34 38 42 46 50of workers Age 54 60
  • 32. END