Labour economics

Labour economics seeks to understand the functioning and dynamics of the markets for wage labour. Labour markets or job markets function through the interaction of workers and employers. Labour economics looks at the suppliers of labour services (workers) and the demanders of labour services (employers), and attempts to understand the resulting pattern of wages, employment, and income. Labour is a measure of the work done by human beings. It is conventionally contrasted with such other factors of production as land and capital. Some theories focus on human capital (referring to the skills that workers possess, not necessarily their actual work). There are two sides to labour economics. Labour economics can generally be seen as the application of microeconomic or macroeconomic techniques to the labour 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. The labour force is defined as the number of people of working age, who are either employed or actively looking for work. The participation rate is the number of people in the labour force divided by the size of the adult civilian noninstitutional population (or by the population of working age that is not institutionalized). The non-labour force includes those who are not looking for work, those who are institutionalised such as in prisons or psychiatric wards, stay-at home spouses, children, and those serving in the military. The unemployment level is defined as the labour force minus the number of people currently employed. The unemployment rate is defined as the level of unemployment divided by the labour force. The employment rate is defined as the number of people currently employed divided by the adult population (or by the population of working age). In these statistics, self-employed people are counted as employed. The skills required in a labor force can vary from individual to individual, as well as from firm to firm. Some firms have specific skills they are interested in, limiting the labour force to certain criteria. A firm requiring specific skills will help determine the size of the market. Variables like employment level, unemployment level, labour force, and unfilled vacancies are called stock variables because they measure a quantity at a point in time. They can be contrasted with flow variables which measure a quantity over a duration of time. Changes in the labour force are due to flow variables such as natural population growth, net immigration, new entrants, and retirements from the labour force. Changes in unemployment depend on inflows made up of non-employed people starting to look for jobs and of employed people who lose their jobs and look for new ones, and outflows of people who find new employment and of people who stop looking for employment. When looking at the overall macroeconomy, several types of unemployment have been identified, including: Neoclassical economists view the labour market as similar to other markets in that the forces of supply and demand jointly determine price (in this case the wage rate) and quantity (in this case the number of people employed).