This document provides an overview of labour economics as a discipline. It discusses what labour economics is, its importance, and the economic perspective used in labour economics. Specifically, it examines theories of choice that assume relative scarcity of resources, purposeful behaviour by individuals and firms, and adaptability to changes in costs and benefits. It also briefly discusses unemployment and inflation.

1. LABOUR
ECONOMICS
LABOR
ECONOMICS

2. Contents:
1- Labour economics as a discipline
 What is labour economics.
 Importance of labour economics.
2- Economic perspective.
 Choice
3-Unemployment
4-Infalation

3. 1-Labour Economics as a
Discipline:

4. What is Labour Economics?
 Labour economics seeks to understand the functioning of the market
and dynamics for labour.
 Labour markets function through the interaction of workers and
employers.
 Labour economics looks at the suppliers of labour services (workers),
the demanders of labour services (employers), and attempts to
understand the resulting pattern of wages, employment, and income.
 It is an important subject because unemployment is a problem that
affects the public most directly and severely.
 Full employment (or reduced unemployment) is a goal of many
modern governments.

5.  There are two sides to labour economics. Labour economics can
generally be seen as the application of microeconomic or
macroeconomic techniques to the labor market.
 Microeconomic techniques study the role of individuals and individual
firms in the labour market.
 Macroeconomic techniques look at the interrelations between the labour
market, the goods market, the money market, and the foreign trade
market. It looks at how these interactions influence macro variables such
as employment levels, participation rates, aggregate income and Gross
Domestic Product.

6. Importance of Labour Economics:
 Socioeconomic Issues
 Gender and race discrimination
 Legal and illegal immigration
 Fall in unionization
 Free trade
 Quantitative Importance
 75% of national income goes to
labour.

7. Importance of Labour Economics
 Unique Characteristics
 Labour is rented and not
bought/sold
 Non-monetary aspects
 Institutional factors (Unions,
licensing, minimum wage,
discrimination)
 Labour demand is a derived
demand

8. 2. Economic Perspective

9. Theories of Choice
 Labour economics uses theories of
choice to explain behavior of labour
market participants and resulting
outcomes.
 Theories rest on three
assumptions…

10. Choice
1- Relative scarcity:
 Society must choose how and
for what purpose labour and
other resources (land, capital,
entrepreneur) should be
allocated since this resources
are scarce.

11.  Example of choices:
 How much time to devote to jobs, to work
in the home, and to leisure.
 How much present income to forgo for the
prospects of obtaining higher future earnings.
 Which goods and services to buy and which
to forgo.
 Relative scarcityof time, personal income.
And societal resources is basic element of
economics perspective.

12. 2-Purposeful behavior:
• Individuals behavior/make choices/ decisions that
maximize their satisfaction, pleasure or utility.
• Individuals make choices purposefully with an
expected net gain.
• Examples: a worker will compare the extra utility
(income) gained from an added hour of work with
the values of the lost leisure.
• A firm will compare the added revenue from hiring a
worker with the extra wage cost.
• It is not easy to achieve intended goals due to
imperfect information.

13. 3- Adaptability:
 Workers and firms adapt to changes in expected
costs and benefits.
 Examples: some workers will adjust the number of
hours they desire to work when the wage rate they
receive changes.
 Fewer people will decide to obtain a specific skills
when the training cost rises or when the wage paid to
those already possessing the skills falls.
 Firms will adjust their hiring when the demand for
their product changes.

14.  Economic perspectives assumes that workers,
employers and other labour market participants
adapt, adjust, or alter their behaviors in responses
to changes in expected costs and expected gains.

15. UNEMPLOYMENT IN PAKISTAN

16. Definition:
Unemployment refers to a situation in which the workers
who are capable of working and willing to work do not get
employment.
UNEMPLOYMENT

17. The factors of unemployment are numerous. But the major factors
of unemployment in Pakistan are as follows:
1. Poor Governance
2. Political Instability
3. Corruption
Major Factors Of
Unemployment In Pakistan

18. 1. Poor Governance:
 Good governance is an essential pre-condition for employment
as it establishes the enabling regulatory and legal framework
essential for the sound functioning of land, labor, capital and
other factors of market
 Whereas good governance is considered to be non-existent in
Pakistan and poor governance is taken one of the key underlying
causes of unemployment in Pakistan.
Factors of Unemployment

19.  2. Political Stability:
 Political stability is fundamental to the creation of an enabling
environment for growth and development.
 Unfortunately the political dilemma has furthermore cornered this
issue
Factors of Unemployment

20. 2.PoliticalInstability:
 Economic agents , particularly investors , must be reassured with
regard to the continuation of policies ,should have confidence in the
government’s credibility in order to operate effectively , and in the
case of investors ,be induced to take risks .
Factors of Unemployment

21. 3.Corruption:
 Corruption is one of the most dangerous factor that
eroded Pakistan’s economic and governance system
since its inception.
 In 2008, Pakistan was ranked as the 46th most corrupt
country out of the 180 countries of the world.
 The persistently rampant corruption in Pakistan not only
jeopardizes its resolve to fight against unemployment
rather adding to the menace of unemployment from all
direction.
Factors of Unemployment

22. Unemployment
Rate in Pakistan

23. Suicide Cases By Unemployment
Over the same period, 1,160 cases of attempted suicide were
reported. According to the report:
 469 people committed suicide for domestic reasons
 136 because they were unemployed
 193 over disputes within families
 74 over the rejection of marriage proposals
 85 after fights with parents
 97 because of poverty
 159 for other reasons.

24. “
”
Unemployment is capitalism's way of
getting you to plant
a garden.
- Orson Scott
Card

25. The causes are endless and countless. But the major causes of
unemployment in Pakistan are as follows:
1. Economic Causes
2. Social Causes
3. Financial Causes
Major Causes Of Unemployment
In Pakistan

26. Low Industrial Growth Rate:
Low industrial growth rate is 1.7 % in Pakistan.
Number of industries is not increasing in Pakistan.
Lack of industries means less opportunities of
employment.
1.Economic Causes

27. Reduction In Foreign Employment:
Due to illiteracy, ill training and lack of skill & efficiency
demand for our labor in foreign market is decreasing.
Use Of Advanced Technology:
A poor country uses backward techniques of production
and labor intensive technologies.
When it uses the advanced technology there spread more
unemployment in the country.
1.Economic Causes

28. High Population Growth Rate:
 The population of Pakistan is increasing at a rate of 2.1 %.
 Due to high rate about two million people enter into the labor market
each year.
Law And Order Situation Of Karachi:
 Karachi is the biggest and an ideal place in terms of industrial base of
Pakistan.
 Investors are not willing to invest in Karachi due to violence that has
taken
over Karachi in the past few years.
2.Social Causes

29. INFLATION
“something which decides economy of the country”

30. Rise in Price
It is a rise in the general price
level caused by an
imbalance between the quantity
of money and trade
needs.

31. The word "inflation" originally applied solely to the quantity of
money.
It meant that the volume of money was
inflated, blown up, overextended.

32. According to Pigou “ Inflation arises when
money income is expanding more than
proportionate to income earning activity”.

33. Types of inflation (Rise in price)
,
1) Creeping inflation 2) Walking inflation
3) Running inflation 4) Galloping inflation

34. Walking inflation: -
When the price rise is moderate. It is a warning signal for the
government to control it before it turns into running inflation.
Creeping inflation:-
The inflation of a nation increases gradually, but continually,
over time.

35. Galloping inflation:-
Prices rise by double or triple digit inflation rates like 400% or
999% per annum.
Running inflation:-
A rapid acceleration in the rate of rising prices more
than 10% per annum is referred as Running Inflation

36. CAUSES OF INFLATION:
1)Demand pull inflation(ex: petrol)
2)Cost push inflation(ex: cement) 3)Over- Expansion of Money Supply
4)Increase in Population
5)Expansion of Bank Credit
1)Black Money
2)Poor Performance of Farm Sector