Principle 3: Skills, knowledge, experience and personal qualities (human capital) influence the ability to achieve goals.
Principle 6: Markets work well with competition, the rule of law, information, property rights, and incentives
Objectives:
Identify the buyers and sellers in a labor market
Explain the statement, “The demand for labor is a derived demand.”
Use the principles of price determination to explain wage determination in competitive labor markets
Use the concept of opportunity cost to explain a worker’s decision to supply her labor in a particular market
Use the Bureau of Labor Statistics’ Occupational Outlook Handbook to research different occupations and their prospects for the future
Relate the phrase, “Make yourself scarce,” to your future in the labor market
Why you want to know this this This is your future. Learning how labor markets work and what the future looks like in different labor markets can help you plan your future. The real question is why would NOT want to know this!
Make yourself scarce. You have learned that the price of a product reflects the relative scarcity of that product. In this summary, you will see that your income will depend on your relative scarcity. How well can you do the job, run the business, or pursue a career compared to all other folks in that particular market. The lesson that will come from this is that it is important for you to MAKE YOURSELF SCARCE.
Identify the market: Job/Career, Place, Time
Like all other prices, labor market prices (wages) are determined by supply and demand. There is, however, no single labor market but many different markets. The market for dentists is very different from the market for dishwashers and the market for chefs is different from the market for ski instructors. The location also makes a difference. The market for surfing instructors in Nebraska is different from the market for surfing instructors in Southern California. The point is that the wage for construction workers in the Los Angeles area in a particular time period is determined by supply and demand for construction workers in Los Angeles during that particular time. Investigating wage determination for construction workers in Los Angeles in a particular time will yield very different results than wage determination for mechanical engineers in that place at that time.
The demand for labor is a derived demand.
The demand for workers is a derived demand. Employers will hire coal miners if there is a demand for coal, no demand for coal, no demand for coal miners. The demand for a particular type of worker also depends on the availability of substitutes. Agricultural workers are in demand as long as there are no machines that can do the job at a lower cost or other workers who will work more cheaply. The demand for particular types of workers depends on the human capital that is required to do the job. A high school dropout is not likely to be hired as a brain surgeon, nor is a brain surgeon likely to be hired as an elementary teacher. The demand for a particular worker also depends upon the soft skills that the worker has acquired. Employers want to know that the worker will show up on time all the time, that the worker is engaged in the work, cooperates with other workers, etc.
Supply – opportunity cost
Workers will be willing to work in certain occupations depending upon the alternatives available and the wages in those alternative activities, the working conditions relative to working conditions in other occupations, and the human capital required in the particular industry. In other words, the supply of a particular type of worker for a particular job depends upon the opportunity cost of taking that job. During the pandemic, many workers lost their jobs as businesses closed down. When conditions changed, business owners had difficulty finding workers because workers’ opportunity costs had increased. Some workers were still worried about getting the virus, some had child care issues, some were caregivers for elderly relatives, some were looking for better opportunities, some just figured that the transportation, clothing, and other costs of taking a job were greater than what they would earn at the job. For others who had been laid off, early retirement looked like a pretty good alternative. Workers did a benefit/cost analysis and chose not to return to work.
Wage determination
You have learned that the competition of buyers against buyers and sellers against sellers determines product prices. The same is true in a competitive labor market. Wages in a particular industry are determined by the forces of supply and demand. Competition of workers against workers and employers against employers determines the wage rate.
In many labor markets, however, either the employer or the prospective employee has greater “market power” with greater control over either the demand for or supply of labor. The labor struggles of the nineteenth century (actual wars between employers and workers) were fought to gain that market power. The rise of unions was a result of market power by employers. Labor unions continue to play a pivotal role in influencing wages and working conditions. During the pandemic the decrease in the supply of labor (see above) caused wages to increase. In addition, some employers paid “signing bonuses” up to $1000, and improved working conditions.
Substitute Markets
When a decline in one industry is caused by competition from another industry, it is important to try to estimate the decline in the first industry and the increased employment in the competing industry. For example, competition from natural gas, solar, and wind energy has contributed to the decline of coal. Workers in the coal industry have lost jobs and are likely to continue to lose jobs. Workers in natural gas, solar, and wind energy however, have and are likely to continue to gain jobs. To calculate the net effect of this competition, it is necessary to subtract the added employment in the competing industries from the lost employment in the coal industry.
Your path to achieving your life goals
You have learned quite a bit about human capital and the links between school, your investment in your human capital, jobs, income, and your goals. The figure below summarizes the links.
School → human capital → job/career/entrepreneurial opportunities → income/profit goals
What this schematic suggests is that you can use school to develop your human capital to get the job that will help you earn the income that will help you achieve your goals. It is important to note that money is not the goal, it is simply a way to help you achieve your life goals. It is also important to recognize that there may be jobs that will pay you big bucks but that you will not like. The opportunity cost of making a lot of money may be a happy life. Be careful what you wish for!
Your Career Prospects
Let’s use the U.S. Occupational Handbook (https://www.bls.gov/ooh/) to investigate the current and future market for different occupations.
If you are hoping for a relatively high income, it will be important to look into labor markets where the demand is relatively high and the supply is relatively low. In other words, a labor market where workers are relatively scarce. Thus the phrase, “Make yourself scarce.” Be sure, however, that the job is one you will enjoy since you will be spending much of your life in that job. Assume that you are looking for a job that pays $55,000 per year. (While $55,000 may sound like a lot, after taxes and other deductions, $55,000 is likely to bring home about $38,000. But there is another problem. The Handbook uses the “median” wage as an indicator of wages. The “median” wage is the wage at which half of the workers in the occupation earned more than that amount and half earned less. As a beginning worker, you are likely to earn about 80% of the median income or $44,000. After adjusting for your spot in the income chain, taxes and other deductions, you are likely to take home 60% of the stated income or $33,000. This income is not going to allow you to be “living the dream,” but you will probably be able to pay the rent and utilities and buy some food and maybe even pay for transportation.) Go to the Handbook, looking for jobs that will provide you $50,000 per year. Select one that you think you might like.
a. What are the education or training requirements for the job? Do you have or will you have those qualifications?
b. What are the working conditions? Are they conditions that you would enjoy?
c. What are the prospects for the number of job openings in the future?
If you are hoping for a relatively high income, it will be important to look into labor markets where the demand is relatively high and the supply is relatively low. In other words, a labor market where workers are relatively scarce. Thus the phrase, “Make yourself scarce.” Be sure, however, that the job is one you will enjoy since you will be spending much of your life in that job. Assume that you are looking for a job that pays $55,000 per year. (While $55,000 may sound like a lot, after taxes and other deductions, $55,000 is likely to bring home about $38,000. But there is another problem. The Handbook uses the “median” wage as an indicator of wages. The “median” wage is the wage at which half of the workers in the occupation earned more than that amount and half earned less. As a beginning worker, you are likely to earn about 80% of the median income or $44,000. After adjusting for your spot in the income chain, taxes and other deductions, you are likely to take home 60% of the stated income or $33,000. This income is not going to allow you to be “living the dream,” but you will probably be able to pay the rent and utilities and buy some food and maybe even pay for transportation.) Go to the Handbook, looking for jobs that will provide you $50,000 per year. Select one that you think you might like. a. What are the education or training requirements for the job? Do you have or will you have those qualifications? b. What are the working conditions? Are they conditions that you would enjoy? c. What are the prospects for the number of job openings in the future?
Assume that you are a high school dropout. Look for apprenticeships that require no high school diploma. How many did you find? What other jobs are available for folks with no high school diploma or equivalent?
Choose a career that you think you would like to follow.
What is the job/career?
Do you have or can you achieve the qualifications for the job?
What is 60% of the median income?
Are the working conditions acceptable to you?
What are the long term prospects for the job/career?
Based on what you have learned from the Handbook, write a short essay explaining the job that you think you would like, the income it is likely to provide, the likelihood that there will be job openings in this profession, the skills that the job will require, and your plan for acquiring those skills.
Bottom Line
In the labor market, workers are the suppliers and businesses are the demanders.
The demand for labor is a derived demand. If demand for the product falls (rises) demand for workers in that industry will fall (rise).
The wage in any particular industry is determined by supply and demand, keeping in mind that one group may have stronger market power than the other.
When two substitute products compete with each other, the fall of one often leads to the rise in the other, causing employment in the first to fall and employment in the second to increase. In analyzing a labor market look for possible jobs lost AND possible jobs gained.
Make yourself scarce.
1. Which of the following statements is true about labor markets?
a. Workers are the demanders
b. Workers are the suppliers
c. All labor markets are competitive
d. All of the above are true
2. If the demand for home delivery services decreases, what will happen in the labor market for home deliverers?
a. Supply will increase.
b. Supply will decrease.
c. Demand will increase.
d. Demand will decrease.
3. What pressure will a decrease in the supply of restaurant workers have on the market for restaurant workers?
a. Increase in wages
b. Decrease in wages
c. Increase in demand
d. Decrease in demand
4. How did the rise of GPS affect workers in the paper map industry?
a. Demand increased
b. Demand decreased
c. Supply increased
d. Wages rose
5. In economics, “Make yourself scarce” means that you should:
a. Be seen but not heard
b. Develop human capital that is in high supply and low demand
c. Develop human capital that is in low supply and high demand
d. Rely on your good looks and personality to get a high paying job
Now let’s see if you have learned enough to answer some questions about current job issues. Remember, in labor markets, the wage is the price of labor, workers are the suppliers, businesses are the demanders.
The US becomes a major exporter of high tech products. The market for unskilled workers in the US now and in the future. Demand _____ Wage _____ Quantity exchanged _____ Employment for unskilled workers will ______. Employment for technology related workers will _____.
Natural gas prices fall below coal prices. Demand for coal falls. The market for coal miners. Demand _____ Wage _____ Quantity exchanged _____ Employment for coal workers will _______. Employment for natural gas workers will ______.
In manufacturing plants, robots replace workers. The market for manufacturing workers now and in the future. Demand _____ Wage _____ Quantity exchanged _____. Employment for manufacturing workers will _____. Employment for robot related workers will _____.
The US population ages. The market for health related workers now and in the future
Demand _____ Wage _____ Quantity exchanged _____ Employment in health related fields will ____.
Based on your research and the questions above, which industries seem to be growing and hiring more workers and which industries appear to be in decline and hiring fewer workers?
Explain to a fellow student what it means to MAKE YOURSELF SCARCE in the labor market.