Chapter 8 - Labor and Employment

1. CHAPTER 8
LABOR AND EMPLOYMENT
QUILLOSA, LEZI

2. • Human Resources are the key to economics developments
• Oil is very important economic resource. It becomes a usefu
and precious resource only when man drills it out, refines it,
and distributes it to the end users.
• Labor is a very important resource. It is so important that
some noted economists postulate that labor is the source of
the important hypotheses and principles economists have
developed about labor.

3. LABOR PROBLEMS
Represents conflicts on social reality with social ideals that
normally rise out of employment.
Unemployment is a classic example.
Those who take part in employment relationship must work out
mutually satisfactory arrangements.
A mutually satisfactory arrangements spelled out from the very
beginning would lessen labor problems.

4. AREAS OF LABOR PROBLEMS
• Unemployment- if he is at least 15yrs old, willing and able to
work, but cannot find work.
• Underemployment- is an employed person who works for le
than 40hrs per week, despite the fact that he wants to work
more hours.
a) Visible underemployment- number of people working less
than 40hrs per week and wanting addtnl work
b) Invisible underemployment- number of people working 40h
or more per week and still wanting addtnl work.

5. nadequate wages- result from inability of wages to catch up with
ncreases in price.
overty threshold- minimum consumption of basic necessities ha
een estimated for families of given characteristics for the
hilippines, which a family considered poor.
OLE defined poverty as “the condition where a family receives
nsufficient income to purchase minimum nutrient requirements and
asic needs.”

6. Table 26
Annual Per Capita Poverty Tresholds and Incidences of
Population by Region for 2006 and 2009

7. INDUSTRIAL AND LABOR MANAGEM
CONFLICT
• Prolonged strikes or lockouts could be
harmful to both parties
• Work stoppages could result in less
production, sales and income for both
ECONOMICS INSECURITIES
• A head of the family would be terrib
insecure if he is not certain that his j
would last long enough.
• People have to provide funds for
emergency like illness, accidents, th
lockouts and strikes.

8. SUBSISTENCE THEORY OF WAGES
An explanation of the long-term trends in the price of labor.
e most prominent of the classical economist were:
Adam Smith
David Ricardo
Thomas Mathus
John Stuart Mill
These economists developed the classical school of thought and
advanced some explanations of the wage-setting process.

9. FACTORS AFFECTING THE THEORY
Laissez-FaireTheory
 “Don’t interfere, the world will take care of itself”.
Laissez-Faire is a French phrase which means “don’t interfere”
States that individuals ought to be free to act their own self-
interest.
Thomas Malthus
His analysis contributed an explanation of the long term chang
the aggregate supply of labor and the wages accompanying it

10. • MalthusianTheory is essentially a simply one.
• 2 general kinds of check that limited population growth:
preventive checks and positive checks.
 Preventive- reduce the birth rate
 Positive- increase the death rate
3. David Ricardo
• Wages, he concluded tended to equal the cost of
reproducing it.
• He maintained that the cost of subsistence would farm
products.

11. GRAPHICAL ILLUSTRATION:
An increase in the supply of labo
would shift supply curve.
The laissez-faire doctrine states
that the “market” will determine
the equilibrium price of labor.

12. The downward trend of the price
of labor will only stop at the level
of subsistence.
Workers would be willing to acce
wages below subsistence level.

13. Equilibrium price and supply
labor will only settle at
subsistence level.

14. CLASSICAL THEORY
The theory states that a firm in a competitive industry will
hire workers up to the point where the value of the marginal
product just equals the cost of the factor.
Profit maximization: w=pMn
Where: w= money wage rate
p= level of prices
Mn= the marginal physical product of labor

15. Real wage rate:
𝑊
𝑃
= 𝑀𝑛
Demand function for Labor: Ld= D
𝑊
𝑃
Where: Ld= demand for labor
𝑤
𝑝
= real wage rate

16. Demand for Labor and Total Product
• The graph shows that if real wage rates are hig
as sahown in
𝑊
𝑃1
the number workers employ
would only be placed at L1.
• If less workers are employed, then they can on
produce a limited amount as shown by theTp1
curve in figure 55.
Supply function of Labor: Ls= S
𝑤
𝑝
• The supply curve is positively sloped.
• It is an increasing function of the real wage ra
55)

17. Equilibrium Point
• Where both employers and workers agree on wage rates, is
reached at the interaction of the demand and supply of labor.

18. Changes in the Supply Curve

19. THE KEYNESIAN THEORY
• John Maynard Keynes advanced his full employment theory.
• His “GeneralTheory of Employment, Interest, and Money”
published in 1936 provides the basic analysis on which the
theory is based.
• He believed that a wage cut was theoretically equivalent in it
effect to fall in the rate of interest.

20. Labor Suppy is a Function of Money Wages
• J.M. Keynes assumed that work
prefer to make their decisions i
terms of money wage.

21. The Cure to Unemploym
• Inflation
• Government
• Trade Unions

22. Table 27
Selected Labor andWage Indicators (for periods indicated)

23. urdened by Crisis
With the government resources getting
scarce and misallocated less and less money
becomes available to address the people
growing needs