Labor Economics Guidebook

LABOR ECONOMICS
WORKTEXT
Jameson N. Estrada
Pangasinan State University
LINGAYEN CAMPUS
Lingayen, Pangasinan
PANGASINA
N
STATEU
NIVERSIT
Y
PANGASINA
N
STATE U
NIVERSITY
1979

PREFACE
Labor Economics with the course code Econ 125 concerns with the study of functioning and
dynamics of the market for labor. It is an economic analysis of how workers, firms and the government
interact in shaping the outcomes in the labor market including demand and supply of labor,
employment, wage structure and earnings, distribution of income, human capital, labor market
discrimination, labor unions, labor mobility, migration and unemployment.
This worktext is intended for use by students of AB Economics program taking up the subject
Econ 124 with the objective of providing them with a comprehensive understanding about Labor
Economics Likewise, it has been designed as an instrument for learning development and
assessment, providing students with a practical approach to applying the knowledge learned in the
lectures. Each worktext covers exercises that is built upon the lessons of all the chapters with the
following course outcomes:
1. Demonstrate an understanding of the nature and scope of labor economics.
2. Analyze the various exogenous variables that affect or determine demand for labor.
3. Examine the different exogenous variables that influence supply of labor.
4. Understand the function and operations of a competitive labor market.
5. Describe labor economic theories on wage structure and compensating wage differential.
6. Develop an awareness on the economics of fringe benefits and incentive pay.
7. Assess labor problems deterrent to increased labor productivity.
8. Appreciate the significance of human capital for the growth of the country’s economy.
9. Learn the impact of labor union and collective bargaining on employment, wages and
incentives to work.
10. Comprehend the implications of labor mobility on wages and employment.
11. Know the concept of unemployment and evaluate government policies to deal with the
different types of unemployment
12. Determine the impact of government intervention in the labor market in terms of employment,
government spending and taxation.
13. Apprehend labor discrimination problems and issues.
14. Interpret labor data and statistics to better understand the Philippine labor market.
15. Value the relevance of labor rights and privileges to worker’s attitude and explain the
provisions of the Labor Code of the Philippines in relation to labor welfare.
Bear in mind that it takes sustained effort – and some dedicated patience – to study and learn
the subject. But, it is assured that the effort is well worth it. It is hoped this modest work helps you.
So, the best of luck as you begin your journey in answering the worktext exercises!

TABLE OF CONTENTS
1 Introduction to Labor Economics
4 Labor Demand
9 Labor Supply
14 Labor Market Equilibrium
18 Wage Structure and Compensating Wage
Differentials
21 Fringe Benefits and Incentive Pay
24 Labor Productivity
28 Human Capital
31 Labor Unions and Collective Bargaining
35 Labor Mobility and Population
28 Unemployment
31 Government and the Labor Market:
Employment, Expenditures and Taxation
35 Labor Discrimination
35 Philippine Labor Market
CONTENTPAGE

1
WORKTEXT 1 : Introduction to Labor Economics Econ 125 – Labor Economics
www.jamesonestrada.com
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EXERCISE 1
True or False. Determine whether each of the following
statements is true or false. Write the answer on the blank after the
number.
1. Labor economics is the economic analysis of how
workers, firms and the government interact in shaping the
outcomes in the labor market. __________
2. Relationship between price of labor and the number of
workers a firm is willing to hire generates the labor
demand curve. __________
3. A worker is an actor of the labor market who supplies
labor service for payoff. __________
4. People who earn relatively high wages have higher
opportunity costs of not working than do people who earn
relatively low wages. __________
5. A person working in a factory is considered to be a capital
resource. __________
6. Government regulates the “rules of the game” in the labor
market. __________
7. People who demand labor are employers. __________
8. Positive economics is an approach to labor analysis that
reflects an opinion, which cannot be proved or disproved
by reference to the facts. __________
9. The price of labor is called the wage rate. __________
10. Because job scarcity exists, workers must make choices,
which means they do not incur opportunity costs.
__________
11. Entrepreneurship may refer to the physical and mental
efforts that people contribute or provide to the production
of goods and services. __________
12. In the labor market, households (workers) supply the
labor resource needed. __________
13. Microeconomics looks into unemployment as one of the
economic indicators that affects the overall performance
of the economy. __________
14. In resource markets, the sellers are the owners of land,
labor, or capital, whereas the buyers are firms.
__________
15. The demand for a resource by a firm depends on the
demand for the goods and services that the firm
produces. __________
16. Division of labor allows the group of workers to produce
much more as this breaks down the production of a good
into separate task. __________
17. The higher the demand for a worker, the higher his wage
rate will be. __________
18. Full employment is achieved when all persons willing
and able to work at the prevailing wages and working
conditions are able to do so. __________
19. Wage rates differ because the supply and the demand
for different types of labor are not the same. ________
20. Employers will be willing and able to hire more people at
lower wage rates than at higher wage rates.
__________
EXERCISE 2
Classification. Determine whether each of the following cases
on labor economics is a concern of microeconomics or
macroeconomics. Write MI for micro and MA for macro.
21. The unemployment rate of the country raised by 3%.
__________
22. A worker’s decision to choose between two offered jobs
- job A or job B. __________
23. The determinants why do some people earn more than
others. __________
24. Because of reduced demand, a cellphone company
temporarily closes one of its factories and lays off
workers. __________
25. Government extends tax subsidies to encourage firms
to increase their employment. __________
Republic of the Philippines
Lingayen Campus
WORKTEXT 1 : INTRODUCTION TO LABOR ECONOMICS
Econ 125 – Labor Economics
NAME: _______________________________________ SCORE: ___________________________________
YEAR AND COURSE: ___________________________ DATE: ____________________________________

2
26. The demand for Filipino workers in international labor
market. __________
27. Sony Electronics laid off five thousand workers last year.
__________
28. The union in a company directly affects the increase in
wages of the factory workers. __________
29. A local travel agency has to close down because of the
widespread availability of direct online booking.
__________
30. The factors that make Google a great company to work
in. __________
31. The firm’s decision of how many and which types of
workers should it hire. __________
32. The offshore outsourcing trend has created some
structural unemployment, as laid-off workers seek new
jobs.
33. Joanna decides to work less overtime as the overtime
wage rate falls. __________
34. The number of employed in the economy as a whole this
year increased. __________
35. The public policies might affect the amount of
unemployment caused by the world price change of oil.
__________
36. Many domestic workers fear losing their jobs to offshore
outsourcing—the contracting of work to suppliers in other
countries. __________
37. More construction workers file for unemployment benefits
in December than in June. __________
38. Government provides ground rules that guide exchanges
made in labor markets. __________
39. The effects of labor productivity among workers in a
manufacturing plant in relation increased wage rate and
improved working conditions. __________
40. The economic policies to be adopted to promote
employment and growth in the economy as a whole.
__________
EXERCISE 3
Classification. Determine whether each of the following
statements is normative or positive. Write N for normative and P
for positive.
41. The labor force participation rate in the Philippines is
64.1% during January 2013.
42. Several politicians have argued that the minimum wage
should be raised in order to ensure that unskilled workers
can make a decent living.
43. Many believe policies that depress the economy and
produce high unemployment are necessary to reduce
embedded inflation.
44. The unemployment rate for those who hold at least a
bachelor’s degree is 4 percent, compared with 9 percent
for those without a high school diploma.
45. More job fairs should be done to allow people looking for
work to meet with many potential employers.
46. Nominal wages are not adjusted for inflation.
47. Most economically advanced countries provide benefits
to laid-off workers as a way to tide them over until they
find a new job.
48. Earnings increase with education because the latter
raises a worker's productivity.
49. As the wage rate rises, the quantity supplied of labor
rises, ceteris paribus.
50. The government should immediately implement a 120-
peso increase in the minimum wage rate in Metro
Manila.
51. Frictional unemployment results from the time it takes
workers to move between jobs.
52. The administration makes substantial investment in
human capital to improve the economic well-being of
disadvantaged OFW workers.
53. Why do high skilled people better worked at a particular
job?
54. The underemployment rate goes up to 22% during the
past month.
55. Why college graduates, on average, earn more than
those with just high school diplomas?
EXERCISE 4
Fill in the blanks with the appropriate word or phrase that
completes each statement. Refer to the circular flow diagram
below to answer the following.

3
56. In product markets, ____________ demand goods and
services, and firms supply them.
57. Worker’s wage rate is determined in the ____________.
58. Households receive income from businesses through the
____________.
59. Firms receive revenue from households through the
____________.
60. Resource market is the place where household’s
____________ labor resources.
61. In the factor markets, households are sellers of labor
services, and firms are ____________.
62. In the product market, ___________ combine resources
to produce and sell goods and services.
63. In the factor market, households provide the
____________ that firms use to produce goods and
services.
64. Firms pay ____________ to households in exchange for
labor services.
65. Households use the income they have received from the
sale of labor resource to ____________ goods and
services
EXERCISE 5
Determine whether the following roles belongs to the workers,
firms or government. Write W for workers, F for firms and G for
government.
66. Impose taxes and grants subsidies. ____________
67. Look for the best job as much as possible. ___________
68. Decide who to hire, promote or fire. ____________
69. Provide ground rules that guide exchanges made in labor
markets. ____________
70. Implement minimum wage laws. ____________
71. Join labor unions. ____________
72. Deliver safe and better working conditions.
____________
73. Want to maximize well-being subject to the constraints of
time and income. ____________
74. Provide fringe benefits. ____________
75. Choose how much capital and labor to employ.
____________
EXERCISE 6
Briefly explain what is asked in the following.
76. Why there is a need to study labor economics? Discuss the
importance.
___________________________________________________
___________________________________________________
___________________________________________________
___________________________________________________
77. According to Aristotle, “Pleasure in the job puts perfection in
the work.” Briefly explain.
___________________________________________________
___________________________________________________
___________________________________________________
___________________________________________________
78. Describe the trends and fluctuations in the unemployment rate
in the Philippines from 2000 through 2013.
___________________________________________________
___________________________________________________
___________________________________________________
___________________________________________________
79. Provide an explanation why Kris Aquino earns P50 million a
year and a schoolteacher P240,000 a year?
___________________________________________________
___________________________________________________
___________________________________________________
___________________________________________________
80. Think about the type of career you hope to have when you are
finished with your college education. Explain why you choose it.
___________________________________________________
___________________________________________________
___________________________________________________
___________________________________________________

1
WORKTEXT 2 : Labor Demand Econ 125 – Labor Economics
EXERCISE 1
number.
1. The demand side of a labor market includes all firms
hiring labor in that labor market ___________
2. Marginal revenue product is the additional revenue
generated by employing an additional factor unit.
___________
3. As the wage rate rises, the quantity demanded for labor
increases, ceteris paribus. ___________
4. The marginal product of labor generally declines as more
labor is hired. ___________
5. A downward-sloping demand curve indicates that
employers hire more people at lower wage rates.
___________
6. A firm is willing to hire a worker when the marginal
product of labor is greater than the wage. ___________
7. If the demand for a good decreases, then the demand for
the labor that produces the good decreases, too.
___________
8. A firm maximizes costs by buying factors in the
combination at which the MPP-to-price ratio for each
factor is the same. ___________
9. High wages are the result of low demand combined with
high supply. ___________
10. The lower the demand for a worker, the higher his wage
rate will be. ___________
11. To maximize profit, a firm will hire workers so long as the
increase in revenue from hiring an additional worker
exceeds the worker’s wage. ___________
12. The higher the elasticity of demand is for the product that
labor produces, the higher the elasticity of demand is for
labor. ___________
EXERCISE 2
Demand for labor is like the demand for any other good. Analyze
what factors that might shift the demand for service crews at
Jollibee, a fast food chain. For each case below, state whether
labor demand will increase or decrease, and also state which of
the factors seems to be causing the shift in demand.
13. A new college school opens up across the street from
the Jollibee. ___________
14. Customers become much more concerned about clean
and customer-oriented restaurants. ___________
15. A new branch of McDonald’s opens up near the
Jollibee’s location. ___________
16. Many customers like the taste of the Jollibee’s new value
meals. ___________
17. Because it’s summer season, the demand for Jollibee
drinks rises. _________
18. The incomes of fast food consumers rise substantially.
___________
19. People become willing to pay more for fast-food meals
during Christmas season. ___________
20. Consumers expect the prices of Jollibee value meals to
fall next week. ___________
21. Jollibee aggressively advertises its price-off promotion.
___________
22. A 5% increase in VAT (Value-added Tax) is placed on
fast-food products. ___________
23. Consumers become health-conscious in eating fast-
food products. ___________
24. The population of the city rises by 3%. ___________
25. McDonald’s decreases the price of its hamburger and
fried chicken meals. ___________
NAME: _______________________________________ SCORE: ___________________________________
Lingayen Campus
WORKTEXT 2 : LABOR DEMAND

2
EXERCISE 3
Indicate whether the following cases would have increase or
decrease in demand for labor. Write IL if there is increase and DL
if there is decrease.
26. People book their travel online nowadays (travel agents)
27. Demand for BPO services increases (call center agents)
___________
28. Students use computers to do their encoding projects.
(typerwriter encoders) ___________
29. Firms use industrial robots (factory workers)
___________
30. Number of applications rises (software developers)
___________
31. Increase in rice production (farmers) ___________
32. Real estate industry falls (real estate brokers)
___________
33. Digital photography becomes popular (film
photographers) ___________
34. Sales for consumer electronics products grow (sales
managers) ___________
35. Increase in number of passengers ( bus drivers)
___________
36. Implementation of K to 12 curriculum (high school
teachers) ___________
37. Decline in infrastructure projects (construction workers)
___________
38. New consumer goods are introduced to the market
(promodisers) ___________
39. Film industry booms (cinematographers) ___________
40. Increase in demand for health professionals (medical
technologists) ___________
41. More hospitals are built (nurses) ___________
42. Increase in overseas jobs (OFWs) ___________
43. Increase in demand for computers (IT professionals)
___________
44. Demand for cars doubles (auto technicians/mechanics)
___________
45. Increase in the number of drug stores (pharmacists)
___________
EXERCISE 4
For each case below, choose the appropriate letter that
corresponds to the effect on the labor demand for factory workers
assembling inkjet printers. State what determinant or factor
induces the change.
46. There is a 10% increase in the hourly wage of factory
workers. ___________
47. Computer industry booms so more printers are being
assembled. ___________
48. More labor unions are organized in the construction
industry. ___________
49. The prices of inputs (materials and equipment) sharply
fall. ___________
50. The number of manufacturers producing printers
increases. ___________
51. The business taxes incurred by printer manufacturers
rise. ___________
52. The government implements an increase in the
minimum wage of factory workers. ___________
53. Labor unions bargain with the employers for the extra
fringe benefits and increase in overtime wage rate.
_________
54. The hiring and training costs increase for incoming
factory workers. ___________
55. A drop in the price of computer hardware would cause
firms to hire or lay-off more factory workers. __________
56. Because of technological advances, industrial robots
are introduced in the printer assembly-lines. _________
57. The price of printers rise substantially. ___________
58. The demand for computers increases as well as inkjet
printers. ___________
59. A printer manufacturer reduces its wage rate to prevent
layoff of workers. ___________
60. The government extends a subsidy of P300 for each unit
produced to printer manufacturers. ___________

3
EXERCISE 5
Multiple Choice. Encircle the one alternative that best completes
the statement or answers the question
61. The demand for labor is the same as the
A. marginal cost. B. marginal physical product.
C. marginal revenue product. D. wage.
E. elastic demand.
62. Which of the following concepts represents the extra revenue
a firm receives from the services of an additional unit of a factor of
production?
A. total revenue B. marginal revenue product
C. marginal physical product D. marginal revenue
E. profit
63. When the wage falls, what would firms most likely do?
A. Fire more workers.
B. Hire more workers.
C. Diversify into new markets.
D. Shut down business.
E. Nothing.
64. The demand for labor will be more elastic if
A. there is a short time under consideration.
B. the demand for the product is relatively inelastic.
C. there are few substitutes for labor.
D. labor is a large percent of the total cost of production.
E. all of the above.
65. The MRP of labor at a certain firm is P50 and the wage is P50
per hour. Given this, the firm should
A. ask for more hours of work.
B. fire more workers.
C. hire more workers.
D. cut back on hours of work.
E. stay at the current level of employment.
66. The MRP of labor at a certain firm is P50 and the wage is P70
per hour. Given this, the firm should
A. ask for more hours of work.
B. fire more workers.
C. hire more workers.
D. cut back on hours of work.
E. stay at the current level of employment.
67. Firms use what intersection to determine their labor demand?
A. Labor supply and MRP of labor
B. Wage and average cost
C. Wage and MRP of labor
D. Average cost and average revenue
E. Marginal cost and marginal revenue
68. A competitive firm should continue to hire workers until
A. MRP is equal to the number of workers hired.
B. MRP is equal to zero.
C. MRP is equal to demand.
D. MRP is equal to the market wage rate.
E. MRP is equal to labor supply.
69. Which of the following could result to a decrease in the
demand for labor in a particular job?
A. A decrease in the amount of risk associated with this job.
B. An improvement in the working conditions associated with
this job.
C. Additional training that increases the productivity of each unit
of labor in this market.
D. An increase in the amount of risk associated with this job.
E. A decrease in productivity of each unit of labor in this market.
70. If the elasticity of labor demand with respect to wages is – 2,
what is the effect on labor demand of 15% increase in the
equilibrium wage rate?
A. Labor demand decreases by 15%.
B. Labor demand increases by 15%.
C. Labor demand decreases by more than 15%.
D. Labor demand decreases by less than 15%.
E. No effect on labor demand.
EXERCISE 6
Problem Analysis. Analyze and answer what is required in the
following problems.
A. Refer to the following table to answer the questions that
follow.
Unit of
Labor
Quantity
of
Output
Marginal
Physical
Product
Price Total
Revenue
Marginal
Revenue
Product
0 15 25
1 24 25
2 32 25
3 39 25
4 45 25
5 50 25
6 51 25
7 52 25
8 50 25
71. Calculate the marginal physical product.
72. Calculate the total revenue.
73. Calculate the marginal revenue product.
B. Tealicious café operates a production function per day as
described in the accompanying table. The equilibrium wage rate
for a worker is P300. Each cup of milk tea sells for P40.
Number of
Workers
Quantity of Milk
Tea Produced MP of labor VMPL
0 0
1 110
2 200
3 270
4 300
5 320
6 330

4
74. Calculate the marginal product of labor for each worker
and the value of the marginal product of labor per worker.
75. How many workers should Marty employ?
C. Lorna’s Pancit Malabon has a production function per day
described in the following table. The daily wage rate for each
worker is P400. Each pancit malabon per bilao sells for P600.
Number of Workers Quantity of Pancit Malabon (per
bilao)
0 0
1 12
2 22
3 30
4 36
5 40
6 42
76. Calculate the marginal product of labor for each worker
and the value of the marginal product of labor per worker.
77. Draw the value of the marginal product of labor curve.
Use the diagram to determine how many workers Lorna
should employ.
78. Now the price of pancit malabon rises to P700. Calculate
the value of the marginal product of labor per worker, and
draw the new value of the marginal product of labor curve
in your diagram. Use the diagram to determine how many
workers Lorna should employ.
D. Refer to the following production schedule.
79. Complete the following table by calculating marginal
product and average product from the data given.
80. Plot the TP, MP and AP curves on a graph using the
completed data on the table and indicate the three stages
of production in the drawn graph.
Inputs of
labor
Total
product
Marginal
Product
Average
Product
0 0
2 56
4 132
6 216
8 288
10 348
12 388
14 412
16 412
18 396

1
WORKTEXT 3 : Labor Supply Econ 125 – Labor Economics
EXERCISE 1
number.
1. Labor supply is the total number of hours that labor
is willing and able to supply at a given wage rate.
_________
2. A person’s wage or salary is his opportunity cost of
leisure. _________
3. As the wage rate rises, the quantity supplied of labor
rises, ceteris paribus. _________
4. A change in the wage rate causes a shift in the supply
curve. _________
5. Income-leisure trade-off assumes that to get more
income a person has to put more time into working and
thus has less time for leisure. _________
6. People who supply labor are employers. _________
7. The labor supply curve for an industry or occupation is
downward sloping. _________
8. In lower-skilled occupations, labor supply is inelastic
because a pool of labor is employable at a fairly constant
market wage rate. _________
9. All else equal, the greater the population in any
geographic area, the greater is the number of people who
will want to work there. _________
10. More people will be willing and able to work at higher
wage rates than at lower wage rates. _________
11. An improvement in the working conditions associated
with a particular job decreases the supply of labor.
_________
12. Skilled labor generates higher wages than less skilled
labor. _________
EXERCISE 2
Labor Supply Analysis. For each case below, choose the
appropriate letter that corresponds to the effect on the supply of
labor of call center agents in the BPO industry. State what
determinant of labor supply induces the change.
13. Many BPO companies begins to offer skyrocketing
salaries to just-out-of-school graduates to increase the
number of applicants for urgent vacant jobs.
_____________
14. Most potential call center agents migrate to other
countries offering higher salaries. _____________
15. The government raises income tax rate of people
working in BPO industry. _____________
16. Higher wage rates in United States lured many call
center agents to move there. _____________
17. The size of the labor force begins to shrink as workers
are disillusioned by bad job prospects in BPO industry.
_____________
Lingayen Campus
WORKTEXT 3 : LABOR SUPPLY
NAME: _______________________________________ SCORE: ___________________________________

2
18. Call center jobs become more risky due to long-term
night shift of work schedules. _____________
19. Job opportunities grow in real estate industry which
provide better compensation package. _____________
20. People now prefer call center works that induced large
number of applicants to join the BPO workforce.
_____________
21. New ten thousand college graduates are added to the
labor force. _____________
22. Workers experience a general rise in their wealth/income
levels. _____________
23. Higher paying careers in FMCG companies become
relatively less popular. _____________
24. Many women change their views of themselves and their
economic role in society and decide that they would
prefer to work in BPP sector. _____________
25. The working conditions improve significantly associated
with call center agents. _____________
26. Business schools across the country raised their tuition
for MBA degrees by 30 percent, thus few business
managers invest to enroll. _____________
27. Opportunities to boost earnings through overtime pays
increase. _____________
28. Job security and opportunities for promotion are ensured
by the BPO companies to employees and applicants.
_____________
29. Necessary in-work trainings are provided to both new and
old employees by many BPO firms. _____________
30. The salaries offered for call center agents are reduced by
25%. _____________
EXERCISE 3
the statement or answers the question.
31. Which of these makes up labor supply?
A. Workers B. Labor unions
C Sellers D. Government
E. Firms
32. Leisure is
A. a complementary good.
B. an inferior good.
C. an intermediate good.
D. an inelastic good.
E. a normal good.
33. The labor supply curve is upward sloping because
A. at higher wages workers want to work less.
B. at lower wages workers want to work fewer hours.
C. at lower wages employers want to buy more labor.
D. at higher wages employers want to sell more labor.
E. The wage does not give an incentive to work more hours.
34. Labor is inversely related to
A. income.
B. consumption.
C. leisure.
D. savings.
E. all other goods.
35. When deciding how much to work, workers must choose
between
A. labor and leisure
B. consumption and labor
C. consumption and leisure
D. consumption and income
E. labor and all other goods
36. Which of these measures the elasticity of labor supply?
A. Response of employers to safer working conditions.
B. Demand for skilled labor.
C. Human capital invested by the firms.
D. Sensitivity of labor supply to changes in wages.
E. Responsiveness of employees to substitute occupations.
37. Workers use their indifference curves and budget constraints
to
A. choose their investment plans.
B. maximize their utility on consumer goods.
C. decide what goods to purchase.
D. optimize their consumption/leisure decisions.
E. optimize their job selection decisions.
38. The skills and training acquired through education and on-
the-job training of workers is
A. wage differential
B. working experience
C. human capital
D. labor investment
E. outsourcing
39. When wages increase, the substitution effect will
A. decrease consumption.
B. decrease all other goods.
C. increase labor
D. increase leisure.
E. none of these
40. When wages fall, the income effect will
A. decrease labor.
B. increase leisure.
C. decrease leisure.
D. increase in income
E. increase in consumption.

3
EXERCISE 4
following problems.
A. Jollimac works as a service crew at a fast-food restaurant. His
labor supply schedule is described below.
Wage Rate (per
hour)
Number of Hours (per
week)
30 30
35 36
40 42
45 48
50 54
55 60
41. Draw Jollimac’s individual labor supply curve.
42. Is Jollimac’s behavior irrational, or can you find a rational
explanation? Explain your answer.
43. Derive Joliimac’s labor supply equation.
B. Adrian is a customer service representative and has 16 hours
per day that he can allocate to work or leisure. His job pays a wage
rate of P100 per hour. Leandro decides to consume 8 hours of
leisure. His indifference curves have the usual shape: they slope
downward, they do not cross, and they are bowed inward.
44. Draw Adrian’s time allocation budget line for a typical
day. Then illustrate the indifference curve at his optimal
choice.
45. Now Adrian’s wage rate falls to P50. Draw Adrian’s new
budget line.
46. Suppose that Adrian now works only 4 hours as a result
of his declined wage rate. Illustrate the indifference curve
at his new optimal choice.
47. Adrian’s decision to work less as the wage rate falls is
the result of a substitution effect and an income effect. In
your diagram, show the income effect and the
substitution effect from this reduced wage rate. Which
effect is stronger?
C. Monica is a highly paid real estate consultant who earns P2,000
per hour. She has 15 hours per day that she can allocate to work
or leisure. She typically decides to work for 10 hours.
48. Draw Monica’s time allocation budget line for a typical
day, and illustrate the indifference curve at her optimal
choice.
49. One of Monica’s clients is introducing top of the line
condominium units. As a result, Monica’s consulting fee
now rises to P4,000 per hour. Monica decides to work
only 8 hours per day. Draw Monica’s new time allocation
budget line, and illustrate the indifference curve at her
optimal choice.
50. In your diagram, show the income effect and the
substitution effect from this increase in the wage rate.
Which effect is stronger?

1
WORKTEXT 4 : Labor Market Equilibrium Econ 125 – Labor Economics
EXERCISE 1
number.
1. The wage rate and the number of people employed are
determined in the labor market. ___________
2. At the equilibrium wage rate, the quantity supplied of
labor equals the quantity demanded of labor.
___________
3. The price of labor is called the wage rate. ___________
4. People who demand labor are usually referred to as
employers, and people who supply labor are employees.
___________
5. An increase in labor demand results in an increase in
both equilibrium wage and the equilibrium level of
employment. ___________
6. A national labor market is one in which most job search
by employers and firms takes place on a national level.
___________
7. Jobs in the primary labor market are characterized by
high wages and stable employment relationships.
___________
8. When the market has a surplus of labor, the wage rate
falls. ___________
9. A shortage in a labor market makes it harder for firms to
find workers and forces them to pay higher recruiting
costs to fill job vacancies. ___________
10. Wage rates differ because the supply and the demand for
different types of labor are not the same. ___________
11. A labor shortage will occur only when the wage rate fails
to rise to its equilibrium value. ___________
12. When the labor market is in equilibrium, the amount of
GDP produced is potential GDP. ___________
EXERCISE 2
Classification. Determine whether each of the following covers
primary labor market or secondary market. Write PL for primary
labor market and SL for secondary labor market.
13. Lawyers ___________
14. Merchandisers ___________
15. Gas station attendants ___________
16. Financial advisors ___________
17. Janitors ___________
18. Dishwashers ___________
19. Electrical engineers ___________
20. Medical technologists ___________
21. Archeologists ___________
22. Architects ___________
EXERCISE 3
Classification. Determine whether each of the following covers
local, national or international labor market. Write LL for local
labor market, NL for national labor market and IL for international
labor market.
23. College professors ___________
24. Sales managers in large corporations ___________
25. Truck drivers ___________
26. Waiters in cruise ships ___________
27. Caregivers ___________
28. Secretaries ___________
29. Pharmacists ___________
30. Overseas domestic worker ___________
31. Seafarers ___________
32. Production workers in Taiwan ___________
Lingayen Campus
WORKTEXT 4 : LABOR MARKET EQUILIBRIUM
NAME: _______________________________________ SCORE: ___________________________________

2
EXERCISE 4
Classification. Determine whether each of the following jobs
covers agricultural, industrial or services sector. Write AS for
agricultural sector, IS for industrial sector and SS for services
sector.
33. Commercial fishermen ___________
34. Chefs ___________
35. Car mechanic ___________
36. Industrial engineers ___________
37. Forestry workers
38. Veterinarians ___________
39. Mason ___________
40. Registered nurses ___________
41. Construction foreman ___________
42. Social workers ___________
EXERCISE 5
Matching Type. Match each item of labor market sectors with the
corresponding items of occupation by placing the appropriate letter
before the number.
43. Real estate A. Surgeons
44. Manufacturing B. Miners
45. Agriculture C. Web developers
46. Transportation D. Tellers
47. Telecommunications E. Cooks
48. Food service F. Carpenters
49. Banking G. Appraisers
50. Health H. Farmers
51. Information technology I. Factory workers
52. Education J. Supermarket cashiers
53. Wholesale and retail K. Teachers
54. Mining L. Telephone operators
55. Construction M. Bus drivers
EXERCISE 6
Labor Market Analysis. You are analyzing the labor market for
construction workers in the construction industry. Refer to the
illustrations below depicting how each of the following events
affects the equilibrium wage rate and quantity of labor demanded
or supplied of construction workers. Write the letter of your choice
on the blank provided after the number. Explain.
56. The construction works become more dangerous so
laborers supply less. __________
57. People now prefer construction jobs that induced large
number of construction workers to join the workforce.
__________
58. The number of workers in the labor force increases.
__________
59. The working conditions in the construction industry in
general get worse. __________
60. The government increases the minimum wage received
by construction workers. __________
61. The demand for leasing commercial buildings increases.
__________
62. Workers now experience a general rise in their wealth
levels. __________
63. Opportunities lessen in construction industry because of
layoffs. __________
64. The income taxes levy on the workers’ salary increase.
__________
65. The number of construction firms rises. __________
66. The prices of building materials and equipment
substantially rise. __________

3
67. Job opportunities increase in manufacturing industry that
provide higher compensation and improved working
conditions. __________
68. Construction firms begin to use newly developed robots
that perform many tasks formerly done by construction
workers. __________
69. Real estate industry grows so more buildings are built.
__________
70. More labor unions are established in the construction
industry. __________
EXERCISE 7
Problem / Graphical Analysis. Analyze and answer what is
required in the following problems.
A. Suppose the labor market for janitorial works in Metro
Manila is described by the diagram below.
71. What is the quantity of labor supplied if wage rate is P80?
__________
72. What is the quantity of labor demanded if wage rate is
P50? __________
73. What is the wage rate if quantity of labor supplied is 140
thousand? __________
74. What is the wage rate if quantity of labor demanded is 90
thousand? __________
75. What is the equilibrium wage rate? __________
76. What is the equilibrium labor quantity? __________
77. At a wage rate of P60 per hour, is there a surplus or
shortage of labor? By how many workers? __________
78. At a wage rate of P30 per hour, is there a surplus or
shortage of labor? By how many workers? __________
79. What is the labor demand equation? __________
80. What is the labor supply equation? __________
B. Suppose the labor demand and supply data in the following
schedule relate the labor market for promodisers, a person
employed by a company to be the sales and promotion
representative. Use this to answer the questions that follow.
Wage Rate (per
hour)
Quantity of Labor
Demanded
(in thousands)
Quantity of Labor
Supplied
(in thousands)
30 10 20
50 20 25
70 30 30
90 40 35
120 50 40
150 60 45
180 70 50
81. Plot the labor demand and supply curves for
promodisers.
82. What is the equilibrium wage rate and labor quantity?
Mark in the equilibrium wage rate and equilibrium labor
quantity in the plotted graphs.
83. Is there a surplus or shortage of labor at a wage rate P50
per hour? By how many promodisers? Does the
equilibrium wage rate rise or fall? Label this in the plotted
graphs.
84. Is there a surplus or shortage of labor at a wage rate
P120 per hour? By how many promodisers? Does the
equilibrium wage rate rise or fall Label this in the plotted
graphs.
85. Derive the labor demand and labor supply equation
represented by the table.
86. Suppose the number of companies hiring promodisers
declines and companies demand 5 thousand less units
of labor at each wage rate. Create a new labor demand
schedule representing the lower demand for
promodisers and derive a new labor demand function
based on the new schedule. Graph the original and new
labor demand curve and determine the new equilibrium
wage rate and level of employment.
87. Suppose many promodisers are lured to shift to another
jobs and now supply 5 thousand less units of labor at
each wage rate. Create a new labor supply schedule
representing the lower supply for promodisers and
derive a new labor supply function based on the new
schedule. Graph the original and new labor supply curve
and determine the new equilibrium wage rate and level
of employment.
C. A labor market has the following labor demand and labor
supply functions. = 600 − 2 and = 200 + .
88. Find the equilibrium wage rate.
89. Find the equilibrium labor quantity.
90. Draw a graph of the labor market using the equations
and mark in the equilibrium wage and labor quantity.

1
WORKTEXT 10 : Unemployment Econ 125 – Labor Economics
EXERCISE 1
number.
1. The unemployment rate is the percentage of the total
number of people in the labor force who are unemployed.
_____________
2. The labor force is equal to the difference of the employed
and the unemployed. _____________
3. Some people who are officially unemployed are not in the
labor force. _____________
4. Economists measure the cost of unemployment in terms
of lost output. _____________
5. Cyclical unemployment results from fluctuations in
economic activity caused by the business cycle.
_____________
6. Full employment occurs when cyclical unemployment is
zero. _____________
7. Discouraged workers are workers who have given up
looking for work but who would still like a job.
_____________
8. A person is in the labor force if he is working or actively
seeking work. _____________
9. Frictional unemployment accounts for a larger share of
total unemployment when the unemployment rate is low.
_____________
10. Potential real GDP is the output produced at the natural
rate of unemployment. _____________
11. Structural unemployment is situation where jobs exist but
workers looking for work do not have the necessary skills
for these jobs _____________
12. Efficiency wage theory states that firms operate more
efficiently if wages are above the equilibrium level.
_____________
EXERCISE 2
the statement or answers the question.
13. According to NCSO, labor force of all individuals who
A. 15 years of age and older.
B. 18 years of age and older who are working.
C. 16 years of age and older.
D. 15 years of age and older, capable of engaging in work.
E. 21 years of age and older who are not working.
14. A person who moved to a new place and took two months to
find a new job experienced which type of unemployment?
A. Frictional unemployment
B. Structural unemployment
C. Natural unemployment
D. Cyclical unemployment
E. Seasonal unemployment
15. A person who is unemployed because of a mismatch between
the quantity of labor supplied and the quantity of labor demanded
is experiencing what type of unemployment?
A. Frictional unemployment
B. Structural unemployment
C. Natural unemployment
D. Cyclical unemployment
E. Seasonal unemployment
16. Which of the following can affect the natural rate of
unemployment in an economy over time?
A. Labor force characteristics such as age and work experience
B. The existence of labor unions
C. Advances in technologies that help workers find jobs
D. government job training programs
E. All of the above
17. When the economy goes into recession, the biggest
increase in unemployment is _______.
A. structural because jobs are lost in most places.
B. cyclical because jobs are lost in many industries as they cut
production.
C. frictional because the creation of jobs slows.
D. the combination of structural and frictional as few new jobs
are created.
E. seasonal unemployment because in-demand jobs falls.
Lingayen Campus
WORKTEXT 10 : UNEMPLOYMENT
NAME: _______________________________________ SCORE: ___________________________________

2
18. The sum of the frictional and structural unemployment rates is
equal to the
A. potential unemployment rate.
B. real unemployment rate.
C. natural unemployment rate.
D. zero unemployment rate.
E. cyclical unemployment rate.
19. Consider a shoe factory that permanently closes because of
foreign competition. If the shoe factory’s workers cannot find new
jobs because their skills are no longer marketable, then they are
classified as
A. seasonally unemployed. B. frictionally unemployed.
C. structurally unemployed. D. cyclically unemployed
E. technologically unemployed
20. When the unemployment rate_______ the natural
unemployment rate, real GDP is _______ potential GDP and the
output gap is _______.
A. exceeds; below; negative
B. is below; below; negative
C. exceeds; above; positive
D. is below; above; negative
E. is constant; below; negative
21. If the number of unemployed stays the same and the number
of people in the labor force rises,
A. the unemployment rate will rise.
B. the unemployment rate will fall.
C. the unemployment rate will stay the same.
D. the unemployment rate will fall and become zero.
E. the unemployment cannot be measured.
22. People who are not working will be counted as employed if
they are
A. on vacation.
B. on sick leave.
C. absent from their job because of bad weather.
D. absent from their job because of a labor dispute.
23. John Steinbeck’s Cannery Row describes a character who
takes his own life because of poor job prospects. If he was an
unemployed person who gave up looking for work, he would be
considered:
A. chronically unemployed.
B. a discouraged worker.
C. a member of the labor force.
D. frictionally unemployed.
24. The results of the December 2013 Labor Force Survey
revealed that there were 2.88 million unemployed people. What is
the unemployment rate if there were 41.3 million persons in the
labor force?
A. 71.42% B. 6.97%
C. 12.93% D. 33.18%
E. 1.86%
25. If the unemployment rate is 12 percent and 75 million people
are working, how many people are unemployed?
A. 5 million B. 9 million
C. 24 million D. 7 million
E. 3 million
EXERCISE 3
Determine whether each of the following would be considered
frictional, structural, seasonal, technological, or cyclical
unemployment.
26. A promodiser who was hired for the Christmas season
is laid off after Christmas. ___________
27. Many workers are laid off due to reduced aggregate
demand in the economy. ___________
28. A worker in a DVD rental store becomes jobless as
video-on-demand cable service becomes more popular.
___________
29. A new college graduate is looking for employment.
___________
30. When a telephone exchange in a city is automated,
some jobs in that city are destroyed. ___________
31. Sony Corporation plans to reduce its workforce by
12,000 jobs to remedy its dire financial situation.
___________
32. A public relation officer resigned from her job and is
currently searching for a new one.
33. Because of reduced demand, an appliance company
temporarily closes one of its factories and lays off
workers. ___________
34. Job applicants do not match the job qualifications want
by a manufacturing company. ___________
35. A broadsheet writer leaves her job to make a switch into
television writer. She has been looking for a new job for
several months. ___________
36. A local travel agency has to close down because of the
widespread availability of direct online booking options.
___________
37. The economy gets worse, so an electronics company
shuts down a factory for four months, laying off workers.
38. An automobile company lays off 2,000 workers and
replaces them with robots. The workers start looking for
jobs outside the auto industry. ___________
39. About three workers per month at a plastic plant quit
their jobs because they want to live in another town.
They start searching for work in the new town.
___________
40. A mining company goes bankrupt and lays off its
workers, who immediately start looking for new jobs.
__________
41. After an unsuccessful search, some of the laid-off
workers quit looking for new jobs. ___________

3
42. Some zoo keepers left their job due to unfair labor
practices of the new management. ___________
43. A stock market boom induces newly enriched 60-year-old
workers to take early retirement. ___________
44. Due to the current slump in investment spending, a
worker has been laid off from his programming job.
___________
45. Rice farmers lost their jobs after harvest season.
___________
EXERCISE 4
Indicate whether each of the following people would be counted
as unemployed. Write Y if yes and N if no. Justify your answer.
46. Robylyn, an older worker, has been laid off and gave up
looking for work five months ago. ___________
47. Joshua, a schoolteacher, is not working during his three-
month summer break. ___________
48. Grace, a sales agent, has been terminated and is
currently searching for another position. ___________
49. Rogelio, a trained musician, can only find work playing
for local parties. ___________
50. Andrelyn, a graduate student, went back to school
because jobs were scarce. ___________
51. Kristine, a laid-off worker, quit looking for new jobs after
an unsuccessful search. ___________
52. Reynald, a fresh college graduate, starts to look for an
available job. ___________
53. Ronel, a full time college student, loses his part-time job
as a library clerk. ___________
54. Jessica, an architect, who is working only with a clerk’s
position. ___________
55. Miriam, a data analyst, is currently employed in ABC
Corporation. ___________
56. Mr. Braganza, a retired police, is enjoying his retirement
benefits. ___________
57. Michael, an autoworker who is still out of work two years
after her plant closed. ___________
58. Mikee, a homemaker returning to the labor market after
an absence of 10 years and looking for work.
59. Johnry, a factory worker who is laid off until business
picks up again. ___________
60. Eric, prison in New Bilibid Prison ___________
EXERCISE 5
following problems.
A. When the following cases occur, does the unemployment rate
rise, fall, or stay the same?
61. Workers are laid off and start looking for work.
62. People without jobs who are looking for work find work.
63. People without jobs and looking for work give up and
stop looking.
64. People without jobs and not looking for work become
encouraged and decide to start looking for work.
65. People without jobs and not looking for work take a job
immediately.
B. What is the labor market classification of each of the following
individuals? Be as specific as possible, and explain your answer.
66. Julie has a graduate degree in mechanical engineering.
She works full-time mowing lawns.
67. Jeff was laid off from his previous job. He would very
much like to work at any job, but, after looking for work
for a year, has stopped looking for work.
68. Ian is working 25 hours per week at a bookstore, and
has no desire to work full time.
69. Raj has decided to take a year off from work to stay
home with his daughter.
C. Are the following workers more likely to experience short-term
or long-term unemployment? Explain.
70. A construction worker laid off because of bad weather.
71. A manufacturing worker who loses her job at a plant in
an isolated area.
72. A stagecoach-industry worker laid off because of
competition from railroads.
73. A short-order cook who loses his job when a new
restaurant opens across the street.
74. An expert welder with elementary education who loses
his job when the company installs automatic welding
machinery.
D. Use the data provided below to calculate each of the following.
Show how you calculate each.
Population age 16 year old
and order 17 million
Employment 11 million
Unemployment 650 thousand
75. The size of the labor force.
76. The labor force participation rate.
77. The employment rate.
78. The unemployment rate.

4
E. The results of the January 2014 Philippine Labor Force Survey
(LFS) revealed that approximately 37.94 million were employed,
2.89 were unemployed and 22.93 million were not in the labor
force. Use this information to calculate the
79. Adult population.
80. Labor force.
81. Labor force participation rate.
82. Employment rate.
83. Unemployment rate.
F. Calculate the unemployment rate and the labor force
participation rate in the following cases:
84. Employed: 100 million. Population: 250 million. In labor
force: 160 million.
85. Unemployed: 9 million. Population: 200 million.
Employed: 90 million.
86. In labor force: 70 million. Population: 80 million.
Unemployed: 2 million.
G. Determine the impact on each of the following if 1.8 million
formerly unemployed workers decide to return to school full time
and stop looking for work:
87. The labor force participation rate.
88. The size of the labor force.
89. The unemployment rate.
H. Suppose that NSO survey reported the following data in a
barangay of 1,000 people: 480 worked at least 1 hour as paid
employees; 120 did not work but were temporarily absent from
their jobs; 240 did not have jobs and didn’t want to work; 90 were
available for work and last week they had looked for work; and 70
were available for work and were waiting to be recalled to their
previous job.
90. Calculate the unemployment rate.
91. Calculate the labor force participation rate.
I. Suppose there are 180 million people in the labor force, the
unemployment rate is 7.0%, the labor force participation rate is
70%, and the natural rate of unemployment is 3%.
92. How many people are in the adult population?
93. How many people are not working?
94. How many people are working unemployed?
95. How many people are unemployed?
96. How many percentage points is output above or below its
potential?
J. In a municipal economy, in May 2014, 40,000 were employed,
3,500 were unemployed. During June 2014, 120 lost their jobs
and didn’t look for new ones, 40 people quit their jobs and retired,
180 people who had looked for work were hired, 70 people
became discouraged workers, and 60 new graduates looked for
work
97. Calculate the change in the unemployment rate from
May 2014 to June 2014.
K. Suppose there is only one labor market in Econland. All
workers have the same skills, and all firms hire workers with these
skills. Use the accompanying diagram, which shows the supply of
and demand for labor, to answer the following questions. Illustrate
each answer with a diagram.
98. What is the equilibrium wage rate in Econland?
99. At the equilibrium wage rate, what are the level of
employment, the size of the labor force, and the
unemployment rate?
100.If the government of Econland sets a minimum wage
equal to P30 per hour, what will be the level of
unemployment rate?
101.If unions bargain with the firms in and set a wage rate
equal to P60 per hour, what will be the level of
unemployment rate?
102.If the concern for retaining workers and encouraging
high quality work leads firms to set a wage rate equal to
50, what will be the level of employment, the size of the
labor force, and the unemployment rate?
L. A rise in the unemployment rate accompanies a fall in real
GDP. Which of the following are consistent with the observed
relationship between growth in real GDP and changes in the
unemployment rate? Which are not?
103.A rise in the unemployment rate accompanies a fall in
real GDP.
104.An exceptionally strong business recovery is associated
with a greater percentage of the labor force being
employed.
105.Negative real GDP growth is associated with a fall in the
unemployment rate.

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