View source for Labour economics

{{short description|Study of the markets for wage labour}}
{{For|the journal|Labour Economics (journal){{!}}''Labour Economics'' (journal)}}{{Unfocused|date=January 2025}}[[File:"Emergency - Your help is Needed to Can the Crops" - NARA - 513835.tif|thumb|right|200px|A "help wanted" sign seeks available workers for jobs.]]
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'''Labour economics''' seeks to understand the functioning and dynamics of the [[Market (economics)|markets]] for [[wage labour]]. [[Labour (human activity)|Labour]] is a commodity that is supplied by [[labourer]]s, usually in exchange for a [[wage]] paid by demanding firms.<ref name=":04">{{Cite book|title=Labor economics|last=Borjas, George J.|date=14 January 2015|isbn=978-0-07-802188-6|edition=Seventh|location=New York, NY|oclc=889577338}}</ref><ref>{{Cite web |title=Definition of LABOR |url=https://www.merriam-webster.com/dictionary/labor |access-date=2022-03-01 |website=www.merriam-webster.com |language=en}}</ref> Because these labourers exist as parts of a social, institutional, or political system, labour economics must also account for social, cultural and political variables.<ref name="tarling">{{Cite book|title=[[The New Palgrave Dictionary of Economics|The New Palgrave: A Dictionary of Economics]]|edition=1st|last=Tarling|first=R.|year=1987|isbn=978-1-349-95121-5|pages=1–4|chapter=Labour Markets|doi=10.1057/978-1-349-95121-5_1213-1|editor1-last=Eatwell|editor1-first=John|editor1-link=John Eatwell|editor2-last=Milgate|editor2-first=Murray|editor2-link=Murray Milgate|editor3-last=Newman|editor3-first=Peter|editor3-link=Peter Kenneth Newman|publisher=[[Palgrave Macmillan]]|location=[[London]]}}</ref>

'''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. These patterns exist because each individual in the market is presumed to make rational choices based on the information that they know regarding wage, desire to provide labour, and desire for leisure. Labour markets are normally geographically bounded, but the rise of the internet has brought about a 'planetary labour market' in some sectors.<ref>{{Cite journal|last1=Graham|first1=Mark|last2=Anwar|first2=Mohammad Amir|date=2019-04-01|title=The global gig economy: Towards a planetary labour market?|url=https://firstmonday.org/ojs/index.php/fm/article/view/9913|journal=First Monday|language=en|doi=10.5210/fm.v24i4.9913|s2cid=108292032 |issn=1396-0466 |doi-access=free }}</ref>

Labour is a measure of the work done by human beings. It is conventionally contrasted with other [[factors of production]], such as [[Land (economics)|land]] and [[Capital (economics)|capital]]. Some theories focus on [[human capital]], or [[entrepreneurship]], (which refers to the skills that workers possess and not necessarily the actual work that they produce). Labour is unique to study because it is a special type of good that cannot be separated from the owner (i.e. the work cannot be separated from the person who does it). A labour market is also different from other markets in that workers are the suppliers and firms are the demanders.<ref name=":04"/>

==Macro and micro analysis of labour markets==
There are two sides to labour economics. Labour economics can generally be seen as the application of [[microeconomics|microeconomic]] or [[macroeconomics|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]].

==Macroeconomics of labour markets==
[[File:Job Advertisement Board in Shenzhen -01.jpg|upright=0.9|thumb|right|Job advertisement board in [[Shenzhen]]]]

The labour market in macroeconomic theory shows that the supply of labour exceeds demand, which has been proven by salary growth that lags productivity growth. When labour supply exceeds demand, salary faces downward pressure due to an employer's ability to pick from a labour pool that exceeds the jobs pool. However, if the demand for labour is larger than the supply, salary increases, as employee have more bargaining power while employers have to compete for scarce labour.<ref>{{Cite web|last=Kenton|first=Will|title=Labor Market Explained: Theories and Who Is Included|date=March 30, 2022|url=https://www.investopedia.com/terms/l/labor-market.asp|access-date=January 26, 2023|website=[[Investopedia]]}}</ref>

The [[Workforce|labour force]] (LF) is defined as the number of people of [[working age]], who are either employed or actively looking for work (unemployed). The ''labour force participation rate'' (LFPR) 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 [[Institutionalisation|institutionalized]]), LFPR = LF/Population.<ref name=":02">{{Cite book |title=Principles of economics |last=Mankiw|first=N. Gregory|author-link=Greg Mankiw|isbn=978-1-305-58512-6|edition=Eighth|publisher=[[Cengage|Cengage Learning]]|location=Boston, MA, USA |oclc=974706695|year=2016}}</ref>

The non-labour force includes those who are not looking for work, those who are institutionalized (such as in prisons or psychiatric wards), stay-at-home spouses, children not of working age, 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.<ref name=":02" />

The labour market has the ability to create a higher derivative efficiency of labour, especially on a national and international level, compared to simpler forms of labour distribution, leading to a higher financial GDP growth and output. An efficient labour market is important for the private sector as it drives up derivative income through the reduction of relative costs of labour. This presupposes that [[division of labour]] is used as a method to attain cost efficiency.<ref>{{cite web |title=What is 'Labour Market' |url=https://economictimes.indiatimes.com/definition/labour-market |publisher=The Economic Times |access-date=15 September 2022}}</ref><ref>{{cite web |last1=Karanassou |first1=Marika |last2=Sala |first2=Hector |last3=Snower |first3=Dennis J. |title=The Macroeconomics of the Labor Market: Three Fundamental Views |url=https://docs.iza.org/dp2480.pdf |publisher=Institute for the Study of Labor |access-date=15 September 2022}}</ref><ref>{{cite web |last1=Frenkel |first1=Roberto |last2=Ros |first2=Jaime |title=Unemployment, macroeconomic policy and labor market flexibility: Argentina and Mexico in the 1990s |url=https://repositorio.cepal.org/bitstream/handle/11362/31908/S2004202.pdf?sequence=1 |website=repositorio.cepal.org |access-date=15 September 2022}}</ref>

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 [[Retirement|retirements]]. Changes in unemployment depend on inflows (non-employed people starting to look for jobs and employed people who lose their jobs that are looking for new ones) and outflows (people who find new employment and people who stop looking for employment). When looking at the overall macroeconomy, several types of unemployment have been identified, which can be separated into two categories of natural and unnatural unemployment.<ref name=":02" />

''Natural Unemployment''

* '''Frictional unemployment''' – This reflects the fact that it takes time for people to find and settle into new jobs that they feel are appropriate for them and their skill set.<ref name=":02" /> Technological advancement often reduces frictional unemployment; for example, internet search engines have reduced the cost and time associated with finding work and [[personnel selection|hiring decisions]].
* '''[[Structural unemployment]]''' – The number of jobs available in an industry are insufficient to provide jobs to all persons who are interested in working or qualified to work in that industry. This can be due to the changes in industries prevalent in a country or because wages for the industry are too high, causing people to want to supply their labour to that industry.<ref name=":02" />
* '''Seasonal unemployment''' – Unemployment due to seasonal fluctuations of demand for workers across industries, such as in the retail industry after holidays that involve a lot of shopping are over.<ref name=":02" />
* '''Natural rate of unemployment''' (also known as '''full employment''') – This is the summation of frictional and structural unemployment, that excludes cyclical contributions of unemployment (e.g. recessions) and seasonal unemployment. It is the lowest rate of unemployment that a stable economy can expect to achieve, given that some frictional and structural unemployment is inevitable. Economists do not agree on the level of the natural rate, with estimates ranging from 1% to 5%, or on its meaning – some associate it with "non-accelerating [[inflation]]". The estimated rate varies between countries and across time.<ref name=":02" />

''Unnatural Unemployment''

* '''Demand deficient unemployment''' (also known as '''cyclical unemployment''') – Any level of unemployment beyond the natural rate caused by the [[Disequilibrium macroeconomics|failure of markets to clear]], generally due to insufficient [[aggregate demand]] in the economy. During a recession, demand is deficient, causing the underutilisation of inputs (including labour). 
Aggregate expenditure (AE) can be increased by increasing consumption spending (C), investment spending (I), government spending (G), or increasing exports (X), since AE = C + I + G + X. 
*

==Neoclassical microeconomics==

[[neoclassical economics|Neoclassical economists]] view the labour market as similar to other markets in that the forces of [[supply and demand]] jointly determine the price (in this case the wage rate) and quantity (in this case the number of people employed).

However, the labour market differs from other markets (like the markets for goods or the financial market) in several ways. In particular, the labour market may act as a [[market clearing|non-clearing market]]. While according to neoclassical theory most markets quickly attain a point of equilibrium without excess supply or demand, this may not be true of the labour market: it may have a persistent level of unemployment. Contrasting the labour market to other markets also reveals persistent [[compensating differential]]s among similar workers.

Models that assume [[perfect competition]] in the labour market, as discussed below, conclude that workers earn their [[marginal product]] of labour.<ref>{{cite web |title=The Micro-Economics of "Surplus Labor"|url=http://www.econ.yale.edu/growth_pdf/cdp772.pdf|publisher=Yale University|author=Gustav Ranis|date=February 1997|access-date=January 23, 2023}}</ref>

===Neoclassical supply===

{{See also|Labour supply}}
[[File:Tompkins Square Park Central Knoll.jpg|thumb|right|The neoclassical model analyzes the trade-off between leisure hours and working hours.]]
[[File:RAILROAD WORK CREW IMPROVES THE TRACKS AND BED OF THE ATCHISON, TOPEKA AND SANTA FE RAILROAD NEAR BELLEFONT, KANSAS... - NARA - 556012.jpg|thumb|right|Railroad work]]

Households are suppliers of labour. In microeconomic theory, people are assumed to be rational and seeking to maximize their [[utility function]]. In the labour market model, their utility function expresses trade-offs in preference between leisure time and income from time used for labour. However, they are constrained by the hours available to them.

Let ''w'' denote the hourly wage, ''k'' denote total hours available for labour and leisure, ''L'' denote the chosen number of working hours, π denote income from non-labour sources, and ''A'' denote leisure hours chosen. The individual's problem is to maximise utility ''U'', which depends on total income available for spending on consumption and also depends on the time spent in leisure, subject to a time constraint, with respect to the choices of labour time and leisure time:

:<math>\text{maximise} \quad U(wL + \pi, A) \quad \text{subject to} \quad L + A \le k </math>

This is shown in the graph below, which illustrates the trade-off between allocating time to leisure activities and allocating it to income-generating activities. The linear constraint indicates that every additional hour of leisure undertaken requires the loss of an hour of labour and thus of the fixed amount of goods that that labour's income could purchase. Individuals must choose how much time to allocate to [[leisure]] activities and how much to [[wage labour|working]]. This allocation decision is informed by the [[indifference curve]] labelled IC<sub>1</sub>. The curve indicates the combinations of leisure and work that will give the individual a specific level of utility. The point where the highest indifference curve is just tangent to the constraint line (point A), illustrates the optimum for this supplier of labour services.

If consumption is measured by the value of income obtained, this diagram can be used to show a variety of interesting effects. This is because the absolute value of the slope of the budget constraint is the wage rate. The point of optimisation (point A) reflects the equivalency between the wage rate and the [[marginal rate of substitution]]<ref name="robertfrank">{{cite book|url=http://students.aiu.edu/submissions/profiles/resources/onlineBook/P3w4i7_Frank-Microeconomics-and-Behavior.pdf|access-date=January 26, 2023|title=Microeconomics and Behavior|last=Frank|first=Robert H.|author-link=Robert H. Frank|edition=Seventh|publisher=[[McGraw Hill Education|McGraw Hill]]/Irwin|isbn=978-0-07-337573-1|year=2008}}</ref> of leisure for income (the absolute value of the slope of the indifference curve). Because the marginal rate of substitution of leisure for income is also the ratio of the [[marginal utility]] of leisure (MU<sup>L</sup>) to the marginal utility of income (MU<sup>Y</sup>), one can conclude:

:<math>{{MU^L}\over{MU^Y}} = {{dY}\over{dL}},</math>

where ''Y'' is total income and the right side is the wage rate.

<div style="float:center;text-align:center">
[[File:Labour wage increase small.png|class=skin-invert-image|Effects of a wage increase]]<br />''Effects of a wage increase''</div>
If the wage rate increases, this individual's constraint line pivots up from X,Y<sub>1</sub> to X,Y<sub>2</sub>. He/she can now purchase more goods and services. His/her utility will increase from point A on IC<sub>1</sub> to point B on IC<sub>2</sub>.
To understand what effect this might have on the decision of how many hours to work, one must look at the [[income effect]] and [[substitution effect]].

The wage increase shown in the previous diagram can be decomposed into two separate effects. The pure income effect is shown as the movement from point A to point C in the next diagram. Consumption increases from Y<sub>A</sub> to Y<sub>C</sub> and – since the diagram assumes that leisure is a [[normal good]] – leisure time increases from X<sub>A</sub> to X<sub>C</sub>. (Employment time decreases by the same amount as leisure increases.)

<div style="float:center;text-align:center">[[File:Labour supply income and substitution effects small.png|class=skin-invert-image|The Income and Substitution effects of a wage increase]]<br />''The Income and Substitution effects of a wage increase''</div>

But that is only part of the picture. As the wage rate rises, the worker will substitute away from leisure and into the provision of labour—that is, will work more hours to take advantage of the higher wage rate, or in other words substitute away from leisure because of its higher [[opportunity cost]]. This substitution effect is represented by the shift from point C to point B. The net impact of these two effects is shown by the shift from point A to point B. The relative magnitude of the two effects depends on the circumstances. In some cases, such as the one shown, the substitution effect is greater than the income effect (in which case more time will be allocated to working), but in other cases, the income effect will be greater than the substitution effect (in which case less time is allocated to working). The intuition behind this latter case is that the individual decides that the higher earnings on the previous amount of labour can be "spent" by purchasing more leisure.

<div style="float:left;text-align:center">[[File:Labour supply small.png|class=skin-invert-image|The Labour Supply curve]]<br />''The Labour Supply curve''</div>

If the substitution effect is greater than the income effect, an individual's supply of labour services will increase as the wage rate rises, which is represented by a positive slope in the '''labour supply curve''' (as at point E in the adjacent diagram, which exhibits a positive wage [[Elasticity (economics)|elasticity]]). This positive relationship is increasing until point F, beyond which the income effect dominates the substitution effect and the individual starts to reduce the number of labour hours he supplies (point G) as wage increases; in other words, the wage elasticity is now negative.

The direction of the slope may change more than once for some individuals, and the labour supply curve is different for different individuals.

Other variables that affect the labour supply decision, and can be readily incorporated into the model, include taxation, welfare, work environment, and income as a [[Signalling (economics)|signal]] of ability or social contribution.

===Neoclassical demand===
{{See also|Labour demand}}

A firm's labour demand is based on its [[marginal product of labour|marginal physical product of labour]] (MPP<sub>L</sub>). This is defined as the additional output (or physical product) that results from an increase of one unit of labour (or from an infinitesimal increase in labour). (See also [[Production theory basics]].)

Labour demand is a derived demand; that is, hiring labour is not desired for its own sake but rather because it aids in producing output, which contributes to an employer's revenue and hence profits. The demand for an additional amount of labour depends on the [[Marginal Revenue Product]] (MRP) and the [[marginal cost]] (MC) of the worker. With a [[perfect competition|perfectly competitive]] goods market, the MRP is calculated by multiplying the [[price]] of the end product or service by the [[Marginal Physical Product]] of the worker. If the MRP is greater than a firm's Marginal Cost, then the firm will employ the worker since doing so will increase [[profit (economics)|profit]]. The firm only employs however up to the point where MRP=MC, and not beyond, in neoclassical economic theory.<ref name="robertfrank"/>

The MRP of the worker is affected by other inputs to production with which the worker can work (e.g. machinery), often aggregated under the term "[[capital (economics)|capital]]". It is typical in economic models for greater availability of capital for a firm to increase the MRP of the worker, all else equal. [[Education]] and training are counted as "[[human capital]]". Since the amount of physical capital affects MRP, and since financial capital flows can affect the amount of physical capital available, MRP and thus [[wages]] can be affected by financial capital flows within and between countries, and the degree of capital mobility within and between countries.<ref>{{cite journal |last=Hacker |first=R. Scott |year=2000 |title=The Impact of International Capital Mobility on the Volatility of Labour Income |journal=Annals of Regional Science |volume=34 |issue=2 |pages=157–172 |doi=10.1007/s001689900005 |bibcode=2000ARegS..34..157H |s2cid=154020468 }}</ref>

According to neoclassical theory, over the relevant range of outputs, the marginal physical product of labour is declining (law of diminishing returns). That is, as more and more units of labour are employed, their additional output begins to decline.

Additionally, although the MRP is a good way of expressing an employer's demand, other factors such as social group formation can the demand, as well as the labour supply. This constantly restructures exactly what a labour market is, and leads way to cause problems for theories of inflation.<ref name="tarling"/>

===Equilibrium===

<div style="float:right;text-align:center">[[File:Labour demand in the short run small.png|class=skin-invert-image|A Firm's Labour Demand in the Short Run|alt=A firm's labour demand in the short run (D) and a horizontal supply curve (S)]]<br />''A firm's labour demand in the short run (D) and a horizontal supply curve (S)''</div>

The marginal revenue product of labour can be used as the demand for labour curve for this firm in the short run. In [[competition (economics)|competitive markets]], a firm faces a perfectly elastic supply of labour which corresponds with the wage rate and the marginal resource cost of labour (W = S<sub>L</sub> = MFC<sub>L</sub>). In imperfect markets, the diagram would have to be adjusted because MFC<sub>L</sub> would then be equal to the wage rate divided by marginal costs. Because optimum resource allocation requires that [[Marginal factor cost|marginal factor costs]] equal marginal revenue product, this firm would demand L units of labour as shown in the diagram.

The demand for labour of this firm can be summed with the demand for labour of all other firms in the economy to obtain the aggregate demand for labour. Likewise, the supply curves of all the individual workers (mentioned above) can be summed to obtain the aggregate supply of labour. These [[supply and demand]] curves can be analysed in the same way as any other industry demand and supply curves to determine equilibrium wage and employment levels.

Wage differences exist, particularly in mixed and fully/partly flexible labour markets. For example, the wages of a [[doctor of Medicine|doctor]] and a port cleaner, both employed by the [[National Health Service (England)|NHS]], differ greatly. There are various factors concerning this phenomenon. This includes the MRP of the worker. A doctor's MRP is far greater than that of the port cleaner. In addition, the barriers to becoming a doctor are far greater than that of becoming a port cleaner. To become a doctor takes a lot of education and training which is costly, and only those who excel in academia can succeed in becoming doctors. The port cleaner, however, requires relatively less training. The supply of doctors is therefore significantly less elastic than that of port cleaners. Demand is also inelastic as there is a high demand for doctors and medical care is a necessity, so the NHS will pay higher wage rates to attract the profession.

==Monopsony==
{{Main article|Monopsony}}

Some labour markets have a single employer and thus do not satisfy the perfect competition assumption of the neoclassical model above. The model of a monopsonistic labour market gives a lower quantity of employment and a lower equilibrium wage rate than does the competitive model.

==Asymmetric information==
[[File:Sabah Sarawak labour advert Kuala Lumpur.JPG|thumb|right|An advertisement for labour from Sabah and Sarawak, seen in [[Jalan Petaling]], Kuala Lumpur]]
In many real-life situations, the assumption of perfect information is unrealistic. An employer does not necessarily know how hard workers are working or how productive they are. This provides an incentive for workers to [[Laziness|shirk]] from providing their full effort, called [[moral hazard]].<ref name=":03">{{Cite book|title=Managerial economics : a problem solving approach|last1=Froeb|first1=Luke M.|last2=McCann|first2=Brian T.|last3=Shor|first3=Mikhael|last4=Ward|first4=Michael R.|isbn=978-1-305-25933-1|edition=Fourth|location=Boston, MA|oclc=900237955|year = 2016}}</ref> Since it is difficult for the employer to identify the hard-working and the shirking employees, there is no incentive to work hard and productivity falls overall, leading to the hiring of more workers and a lower unemployment rate.

One solution that is used to avoid a moral hazard is [[Employee stock options|stock options]] that grant employees the chance to benefit directly from a firm's success. However, this solution has attracted criticism as executives with large stock-option packages have been suspected of acting to over-inflate share values to the detriment of the long-run welfare of the firm. Another solution, foreshadowed by the rise of [[temporary work]]ers in Japan and the [[Haken-giri|firing of many of these workers]] in response to the financial crisis of 2008, is more flexible job- contracts and -terms that encourage employees to work less than full-time by partially compensating for the loss of hours, relying on workers to adapt their working time in response to job requirements and economic conditions instead of the employer trying to determine how much work is needed to complete a given task and overestimating.{{citation needed|date=October 2020}}

Another aspect of uncertainty results from the firm's imperfect knowledge about worker ability. If a firm is unsure about a worker's ability, it pays a wage assuming that the worker's ability is the average of similar workers. This wage under compensates high-ability workers which may drive them away from the labour market as well as at the same time attracting low-ability workers. Such a phenomenon, called [[adverse selection]], can sometimes lead to market collapse.<ref name=":03" />

One way to combat adverse selection, firms will try to use [[Signalling (economics)|signalling]], pioneered by [[Michael Spence]], whereby employers could use various characteristics of applicants differentiate between high-ability or low-ability workers. One common signal used is education, whereby employers assume that high-ability workers will have higher levels of education.<ref name=":04"/> Employers can then compensate high-ability workers with higher wages. However, signalling does not always work, and it may appear to an external observer that education has raised the marginal product of labour, without this necessarily being true.

=== Search models ===
{{Main article|Search theory|Matching theory (macroeconomics)}}
One of the major research achievements of the 1990–2010 period was the development of a framework with dynamic [[search theory|search]], matching, and bargaining.<ref>{{cite press release|url=https://www.nobelprize.org/uploads/2018/06/press-12.pdf|title=The Prize in Economic Sciences 2010|date=October 11, 2010|access-date=January 26, 2023|publisher=[[Royal Swedish Academy of Sciences]]|website=NobelPrize.org|agency=Nobel Prize Outreach AB}}</ref>

==Personnel economics: hiring and incentives==
At the micro level, one sub-discipline eliciting increased attention in recent decades is analysis of [[Internal labor market|internal labour markets]], that is, ''within'' firms (or other organisations), studied in [[personnel economics]] from the perspective of [[personnel management]]. By contrast, external labour markets "imply that workers move somewhat fluidly between firms and wages are determined by some aggregate process where firms do not have significant discretion over wage setting."<ref>{{cite journal|title=Internal and external labor markets: a personnel economics approach|last1=Lazear|first1=Edward P.|author1-link=Edward P. Lazear|last2=Oyer|first2=Paul|date=October 2004|journal=[[Labour Economics (journal)|Labour Economics]]|volume=11|issue=5|pages=527–554|url=http://faculty-gsb.stanford.edu/oyer/wp/ports.pdf|archive-url=https://web.archive.org/web/20140201235733/http://faculty-gsb.stanford.edu/oyer/wp/ports.pdf|archive-date=February 1, 2014|access-date=January 26, 2023|doi=10.1016/j.labeco.2004.01.001|s2cid=17727574 }}</ref><ref>{{cite web|url=http://www.aeaweb.org/jel/guide/jel.php|title=JEL Classification Codes Guide: M5 Personnel Economics|access-date=January 26, 2023|website=[[American Economic Association]]}}</ref> The focus is on "how firms establish, maintain, and end employment relationships and on how firms provide incentives to employees," including models and empirical work on incentive systems and as constrained by [[economic efficiency]] and risk/incentive tradeoffs relating to personnel compensation.<ref>{{cite book|url=https://www.nber.org/system/files/working_papers/w15977/w15977.pdf|title = Personnel Economics: Hiring and Incentives|volume = 4B|pages = 1769–1823|series = Handbook of Labor Economics|year = 2011|last1 = Oyer|first1 = Paul|last2 = Scott|first2 = Schaefer| doi=10.1016/S0169-7218(11)02418-X |isbn = 9780444534521|s2cid=17678162|access-date=January 26, 2023}}</ref>

=== Discrimination and inequality ===
[[Economic inequality|Inequality]] and [[discrimination]] in the workplace can have many effects on workers.

In the context of labour economics, inequality is usually referring to the unequal distribution of earning between households.<ref name=":04"/> Inequality is commonly measured by economists using the [[Gini coefficient]]. This coefficient does not have a concrete meaning but is more used as a way to compare inequality across regions. The higher the Gini coefficient is calculated to be the larger inequality exists in a region. Over time, inequality has, on average, been increasing. This is due to numerous factors including labour supply and demand shifts as well as institutional changes in the labour market. On the shifts in labour supply and demand, factors include demand for [[Skilled worker|skilled workers]] going up more than the supply of skilled workers and relative to unskilled workers as well as technological changes that increase productivity; all of these things cause wages to go up for skilled labour while unskilled worker wages stay the same or decline. As for the institutional changes, a decrease in union power and a declining real minimum wage, which both reduce unskilled workers wages, and tax cuts for the wealthy all increase the inequality gap between groups of earners.

As for discrimination, it is the difference in pay that can be attributed to the demographic differences between people, such as gender, race, ethnicity, religion, sexual orientation, etc, even though these factors do not affect the productivity of the worker.<ref name=":04" /> Many regions and countries have enacted government policies to combat discrimination, including discrimination in the workplace. Discrimination can be modelled and measured in numerous ways. The [[Blinder–Oaxaca decomposition|Oaxaca decomposition]] is a common method to calculate the amount of discrimination that exists when wages differ between groups of people. This decomposition aims to calculate the difference in wages that occurs because of differences in skills versus the returns to those skills.<ref name=":04" /> A way of modelling discrimination in the workplace when dealing with wages are [[Gary Becker]]'s taste models. Using taste models, employer discrimination can be thought of as the employer not hiring the minority worker because of their perceived cost of hiring that worker is higher than that of the cost of hiring a non-minority worker, which causes less hiring of the minority. Another taste model is for employee discrimination, which does not cause a decline in the hiring of minorities, but instead causes a more segregated [[workforce]] because the prejudiced worker feels that they should be paid more to work next to the worker they are prejudiced against or that they are not paid an equal amount as the worker they are prejudiced against. One more taste model involves customer discrimination, whereby the employers themselves are not prejudiced but believe that their customers might be, so therefore the employer is less likely to hire the minority worker if they are going to interact with customers that are prejudiced. There are many other taste models other than these that Gary Becker has made to explain discrimination that causes differences in hiring in wages in the labour market.<ref>{{Cite book|url=https://archive.org/details/economicsofdiscr0000beck|title=The economics of discrimination|last=Becker|first=Gary S.|author-link=Gary Becker|date=1971|publisher=[[University of Chicago Press]]|isbn=0-226-04115-8|edition=2d|location=Chicago|oclc=173468|url-access=registration}}</ref><!-- Section needs to be dramatically reworked before unhiding, per [[WP:CSECTION]] --><!--== Criticisms ==
Many sociologists, political economists, and [[heterodox economics|heterodox economists]] claim that labour economics tends to lose sight of the complexity of individual employment decisions.<ref>{{Cite book|title=Jacob Mincer: A Founding Father of Modern Labor Economics - Oxford Scholarship|last=Teixeira|first=Pedro N.|doi=10.1093/acprof:oso/9780199211319.001.0001|year=2007|isbn=9780199211319|publisher=[[Oxford University Press]]}}</ref> These decisions, particularly on the supply side, are often loaded with considerable [[emotional baggage]] and a purely numerical analysis can miss important dimensions of the process, such as social benefits of a high income or wage rate regardless of the marginal utility from increased consumption or specific economic goals.

From the perspective of [[mainstream economics]], neoclassical models are not meant to serve as a full description of the psychological and subjective factors that go into a given individual's employment relations, but as a useful approximation of human behaviour in the aggregate, which can be fleshed out further by the use of concepts such as [[information asymmetry]], [[transaction cost]]s, [[contract theory]] etc.

Also missing from most labour market analyses is the role of [[feminist economics#Unpaid work|unpaid labour]] such as unpaid internships where workers with little or no experience are allowed to work a job without pay so that they can gain experience in a particular [[profession]]. Even though this type of labour is unpaid it can nevertheless play an important part in society if not abused by employers. The most dramatic example is child raising. However, over the past 25 years an increasing literature, usually designated as the [[Family economics|economics of the family]], has sought to study within household decision making, including joint labour supply, fertility, child-raising, as well as other areas of what is generally referred to as home production.<ref>{{Cite web |title=Putting the family in economics |url=https://universityaffairs.ca/features/feature-article/putting-the-family-in-economics/ |access-date=2024-03-14 |website=University Affairs |language=en-US}}</ref>

===Wage slavery===
{{main article|Wage slavery}}
{{further|Economic exploitation|Contemporary slavery}}

The labour market, as institutionalised under today's market economic systems, has been criticised,<ref>{{cite book|title=Property and Contract in Economics: The Case for Economic Democracy|last=Ellerman|first=David P.|author-link=David Ellerman|year=1992|isbn=1557863091|publisher=[[Wiley-Blackwell|Blackwell]]}}</ref> especially by both mainstream [[Socialism|socialists]] and [[anarcho-syndicalism|anarcho-syndicalists]],<ref name="English Working Class p. 599">{{Harvnb|Thompson|1966|p=599}}.</ref><ref name="English Working Class p. 912">{{Harvnb|Thompson|1966|p=912}}.</ref><ref>{{cite book|last=Ostergaard|first=Geoffrey|author-link=Geoffrey Ostergaard|year=1997|title=The Tradition of Workers' Control|location=London|publisher=[[Freedom Press]]|isbn=978-0-900384-91-2|page=133}}</ref><ref>{{cite book|title=Competitive Advantage on the Shop Floor|last=Lazonick|first=William|year=1990|page=37|isbn=9780674154162|publisher=[[Harvard University Press]]|url=https://www.hup.harvard.edu/catalog.php?isbn=9780674154162|access-date=January 26, 2023}}</ref> who utilise the term [[wage slavery]]<ref name="merriam-webster.com">{{cite dictionary |title= wage slave |url= http://www.merriam-webster.com/dictionary/wage%20slave |dictionary= [[Merriam Webster|merriam-webster.com]] |access-date= 4 March 2013 }}</ref><ref>{{cite dictionary |title= wage slave |url= http://dictionary.reference.com/browse/wage%20slave |dictionary= [[dictionary.com]] |access-date= 4 March 2013 }}</ref> as a [[pejorative]] for [[wage labour]]. Socialists draw parallels between the trade of labour as a commodity and [[slavery]]. [[Cicero]] is also known to have suggested such parallels.<ref>"...vulgar are the means of livelihood of all hired workmen whom we pay for mere manual labour, not for artistic skill; for in their case the very wage they receive is a pledge of their slavery.''" – [[De Officiis]] [http://www.constitution.org/rom/de_officiis.htm]''</ref>

According to [[Noam Chomsky]], analysis of the psychological implications of wage slavery goes back to the [[Age of Enlightenment|Enlightenment]] era. In his 1791 book ''On the Limits of State Action'', classical [[liberalism|liberal]] thinker [[Wilhelm von Humboldt]] explained how "whatever does not spring from a man's free choice, or is only the result of instruction and guidance, does not enter into his very nature; he does not perform it with truly human energies, but merely with mechanical exactness" and so when the labourer works under external control, "we may admire what he does, but we despise what he is."<ref>{{cite book|title=Year 501: The Conquest Continues|url=http://www.rosariodawson101.com/books/chomsky/Noam%20Chomsky%20-%205%20books.pdf|access-date=January 26, 2023|last=Chomsky|first=Noam|author-link=Noam Chomsky|year=1993|page=19|isbn=9781895431629|publisher=Black Rose Books}}</ref> Both the [[Milgram experiment|Milgram]] and [[Stanford experiment]]s have been found useful in the psychological study of wage-based workplace relations.<ref>{{cite book|chapter=Social Exchange Theory of Emotions|last1=Lawler|first1=Edward J.|last2=Thye|first2=Shane R.|series=Handbooks of Sociology and Social Research |pages=295–320 |title=Handbook of the Sociology of Emotions|editor1-last=Stets|editor1-first=Jan E.|editor2-last=Turner|editor2-first=Jonathan H.|year=2006|chapter-url=https://hdl.handle.net/handle/1813/76104|access-date=January 26, 2023|doi=10.1007/978-0-387-30715-2_14|isbn=978-0-387-30713-8|location=[[Boston]]|publisher=[[Springer Science+Business Media|Springer]]|hdl=1813/76104 }}.</ref>

The [[Americans|American]] [[philosopher]] [[John Dewey]] posited that until "[[neo-feudalism|industrial feudalism]]" is replaced by "industrial [[democracy]]", politics will be "the shadow cast on society by big business".<ref>{{cite magazine|last=Dewey|first=John|author-link=John Dewey|title=The Need for a New Party|url=https://newrepublic.com/article/104638/the-need-new-party|access-date=January 26, 2023|date=March 18, 1931|quote=As long as politics is the shadow cast on society by big business, the attenuation of the shadow will not change the substance|magazine=[[The New Republic]]|url-access=limited}}</ref> [[Thomas Ferguson (academic)|Thomas Ferguson]] has postulated in his [[investment theory of party competition]] that the undemocratic nature of economic institutions under capitalism causes elections to become occasions when blocs of investors coalesce and compete to control the state.<ref>{{cite book|last1=Ferguson|first1=Thomas|author-link=Thomas Ferguson (academic)|title=Golden Rule : The Investment Theory of Party Competition and the Logic of Money-Driven Political Systems|url=https://archive.org/details/goldenruleinvest00ferg|url-access=registration|date=1995|publisher=[[University of Chicago Press]]|location=[[Chicago]]|isbn=0226243176|access-date=January 26, 2023}}</ref>

As per anthropologist [[David Graeber]], the earliest wage labour contracts we know about were in fact contracts for the rental of chattel slaves (usually the owner would receive a share of the money, and the slave, another, with which to maintain his or her living expenses.) Such arrangements, according to Graeber, were quite common in New World slavery as well, whether in the [[United States]] or [[Brazil]]. C. L. R. James argued that most of the techniques of human organisation employed on factory workers during the industrial revolution were first developed on slave plantations.<ref>{{cite book|title=Fragments of an Anarchist Anthropology|last=Graeber|first=David|author-link=David Graeber|url=https://www.eleuthera.it/files/materiali/David_Graeber_Fragments_%20Anarchist_Anthropology.pdf|access-date=January 26, 2023|year=2004|publisher=[[Prickly Paradigm Press]]|location=[[Chicago]]|page=37|isbn=0-9728196-4-9|lccn=2004090746}}</ref>

Additionally, [[Marxism|Marxists]] posit that labour-as-commodity, which is how they regard wage labour,<ref>{{cite book|last=Marx|first=Karl|author-link=Karl Marx|year=1990|title=Capital: A Critique of Political Economy|volume=1|translator-last=Fowkes|translator-first=Ben|page=1006|url=https://www.surplusvalue.org.au/Marxism/Capital%20-%20Vol.%201%20Penguin.pdf|access-date=January 26, 2023|quote=[L]abour-power, a commodity sold by the worker himself.|publisher=[[Penguin Books]]}}</ref> provides an absolutely fundamental point of attack against [[capitalism]].<ref>Another one, of course, being the capitalists' alleged theft from workers via [[surplus-value]].</ref> "It can be persuasively argued", noted one concerned philosopher, "that the conception of the worker's labour as a commodity confirms Marx's stigmatisation of the wage system of private capitalism as 'wage-slavery;' that is, as an instrument of the capitalist's for reducing the worker's condition to that of a slave, if not below it."<ref>{{cite journal|title=That a Worker's Labour Cannot Be a Commodity|last=Nelson|first=John O.|journal=[[Philosophy (journal)|Philosophy]]|volume=40|number=272|date=April 1995|pages=157–165|publisher=[[Cambridge University Press]]|doi=10.1017/S0031819100065359 |jstor=3751199|s2cid=171054136 }}</ref>

-->

==See also==
{{Portal bar|Organized labour|Economics|Business|Society}}
{{cmn|
* [[Career and Life Planning Education]]
* [[Collective bargaining]]
* [[Salary inversion]]
* [[Employment]]
** [[Unemployment]]
** [[Employment Protection Legislation]]
** [[Compensation of employees]]
* [[Manual labour]]
* [[Affective labour]]
* [[Volunteering|Volunteer]]
* [[Unfree labour]]
* [[Offshore outsourcing]]
* [[Homemaking|Housework]]
* [[Human resources]]
** [[Human Resource Management Systems]]
* [[Cost the limit of price]]
* [[Demographic economics]]
* [[Beveridge curve]]
* [[Consumer theory]]
* [[Conditional factor demands]]
* [[Labour market flexibility]]
* [[Frisch elasticity of labor supply|Frisch elasticity of labour supply]]
* [[Labour power]]
* [[Economic rent]]
* [[Industrial relations]]
}}

==References==
{{reflist|30em}}

==Sources==
* {{cite book |last=Thompson |first=E. P. |author-link=E. P. Thompson |year=1966 |title=The Making of the English Working Class |edition=reprinted |location=[[New York City]] |language=en |publisher=[[Vintage Books]] |isbn=9780394703220 |title-link=The Making of the English Working Class}}

==Further reading==
* [[Richard Blundell]] and Thomas MaCurdy, 2008. "labour supply," ''[[The New Palgrave Dictionary of Economics]]'', 2nd Edition
* [[Richard B. Freeman|Freeman, R.B.]], 1987. "Labour economics," ''[[The New Palgrave: A Dictionary of Economics]]'', v. 3, pp. 72–76.
* [[John Hicks|John R. Hicks]], 1932, 2nd ed., 1963. ''[[The Theory of Wages]]''. London, Macmillan.
* ''Handbook of Labor Economics''. Elsevier. Amsterdam: North-Holland. Links to one-page chapter previews for each volume:
:[[Orley Ashenfelter|Orley C. Ashenfelter]] and [[Richard Layard]], ed., 1986, v. [https://www.sciencedirect.com/handbook/handbook-of-labor-economics/vol/1 1] & [https://www.sciencedirect.com/handbook/handbook-of-labor-economics/vol/2 2];
:Orley Ashenfelter and [[David Card]], ed., 1999, v. [https://www.sciencedirect.com/handbook/handbook-of-labor-economics/vol/3/part/PA 3A], [https://www.sciencedirect.com/handbook/handbook-of-labor-economics/vol/3/part/PB 3B], and [https://www.sciencedirect.com/handbook/handbook-of-labor-economics/vol/3/part/PC 3C]
: Orley Ashenfelter and David Card, ed., 2011, v. [https://www.sciencedirect.com/handbook/handbook-of-labor-economics/vol/4/part/PA 4A] & [https://www.sciencedirect.com/handbook/handbook-of-labor-economics/vol/4/part/PB 4B].
* Mark R. Killingsworth, 1983. ''Labour Supply''. Cambridge: Cambridge Surveys of Economic Literature.
* [[Jacob Mincer]], 1974. ''Schooling, Experience, and Earnings''. New York: Columbia University Press.
* Anindya Bakrie & Morendy Octora, 2002. ''Schooling, Experience, and Earnings''. New York, Singapore National University: Columbia University Press.
* {{cite journal|title= Labor market regimes and the effects of monetary policy|journal= Journal of Macroeconomics|volume= 30|pages= 134–156|doi= 10.1016/j.jmacro.2006.08.006|year= 2008|last1= Acocella|first1= Nicola|last2= Di Bartolomeo|first2= Giovanni|last3= Hibbs|first3= Douglas A.|hdl= 2077/25796|s2cid= 5758901|hdl-access= free}}
* {{cite journal|title=The Challenge of Segmented Labor Market Theories to Orthodox Theory: A Survey|journal = Journal of Economic Literature|volume = 14|issue = 4|pages = 1215–1257|jstor = 2722547|last1 = Cain|first1 = Glen G.|year = 1976}}
* {{cite journal | last1 = Lindbeck | first1 = Assar | author-link = Assar Lindbeck | author-link2 = Dennis J. Snower | last2 = Snower | first2 = Dennis J. | year = 1986 | title = Wage Setting, Unemployment, and Insider-Outsider Relations | journal = American Economic Review | volume = 76 | issue = 2| pages = 235–239 | jstor=1818771}}
* {{Cite journal |last=McGaughey |first=Ewan |date=2014-06-30 |title=Behavioural Economics and Labour Law |url=https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2460685 |url-status=live |journal=[[Social Science Research Network|SSRN Electronic Journal]] |language=en |doi=10.2139/ssrn.2460685 |issn=1556-5068 |s2cid=151022170 |ssrn=2460685 |archive-url=https://web.archive.org/web/20161104030552/https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2460685 |archive-date=2016-11-04}}
* {{Cite book |last=Head |first=Simon |title=The New Ruthless Economy: Work and Power in the Digital Age |date=2005-02-11 |publisher=[[Oxford University Press]] |isbn=9780195179835 |language=en}}
* {{Cite journal |last=Khan |first=Ali |date=2006-10-12 |title=The Dignity of Manual Labor |url=https://papers.ssrn.com/sol3/papers.cfm?abstract_id=936890 |url-status=live |journal=[[Social Science Research Network|SSRN Electronic Journal]] |issn=1556-5068 |ssrn=936890 |archive-url=https://web.archive.org/web/20191112211539/https://papers.ssrn.com/sol3/papers.cfm?abstract_id=936890 |archive-date=2019-11-12}}
* {{Cite journal |last=Miller |first=Doug |date=2013-02-05 |title=Towards Sustainable Labour Costing in UK Fashion Retail |url=https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2212100 |url-status=live |journal=[[Social Science Research Network|SSRN Electronic Journal]] |doi=10.2139/ssrn.2212100 |issn=1556-5068 |s2cid=166733679 |ssrn=2212100 |archive-url=https://web.archive.org/web/20170127163940/https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2212100 |archive-date=2017-01-27}}

==External links==
* [https://osha.europa.eu/en/themes/osh-management-context-ageing-workforce Ageing workers] [[EU-OSHA]]
* [https://web.archive.org/web/20080217040912/http://labour.ceps.lu/ The Labour Economics Gateway] – Collection of Internet sites that are of interest to labour economists
* [https://lwp.law.harvard.edu/ Labour & Worklife Program at Harvard Law School, Changing Labour Markets Project]
* [https://www.upjohn.org/ W.E. Upjohn Institute for Employment Research]
* [https://www.ilo.org/global/statistics-and-databases/research-and-databases/kilm/lang--en/index.htm ILO: ''Key Indicators of the Labour Market (KILM).'' 2007]
* [https://web.archive.org/web/20170630140325/http://labourfair.com/resources.php LabourFair Resources] – Link to Fair Labour Practices
* [https://web.archive.org/web/20130805114559/http://www.labour-research.net/index.php?id=21&L=5 Labour Research Network] – Labour research programme treating various fields
* [http://www.lrd.org.uk/ Labour Research Department] – Independent labour economics research organisation

{{Economics}}
{{Syndicalism}}

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[[Category:Labour economics| ]]
[[Category:Factors of production]]