Insert name Insert institution Insert course Insert date Abstract Labor economics comprises the study of the factors affecting workers. Since all divisions of economics involve workers, it is prudent to evaluate their influence on labor economics and labor market for that matter. Consumption directly affects the supply of labor. If the workers experience an increase in their desire for consumption in relation to leisure, the labor supply curve will shift outwards. The workers will supply more labor at every given wage.
The effect of public finance on labor economics may be through government taxation on the workers. If income taxes increase, workers will likely substitute leisure for consumption and supply less labor. Any effects on the supply and demand for labor will ultimately affect the labor market thus are essential in labor economics. Distribution of income may also affect the labor market especially if the distribution is unequal. Inequality in the distribution of income will affect workers and thus affect labor supply.
Production of goods and services on the other hand determine the supply and demand for labor.
Such effects directly influence the labor market. Table of Contents Labor Economics By amok Study of labor economics involves the study of labor force as an element of production. Labor force mainly comprises all those who work for gain. These can be employees, employers, or those people who are self-employed. It may also include the unemployed who are seeking work. Labor economics therefore, studies the factors affecting efficiency of these workers, their deployment between different industries and determination of their pay.
The various divisions of economics may have varying effects on labor economics.
The five main divisions of economics include institution, distribution, exchange, production and public finance. This paper evaluates the extent to which the divisions of economics influence the study of labor economics. Effect of consumption on the labor market Consumption is the division of economics that deals with spending by households and firms. Consumer market may have significant effects on the labor market. There is a relationship between consumption and leisure (free time) in labor economics. If the workers increase their leisure, they will work less meaning that they will buy less.
If the workers consume more, they will work more but have much less free time for homeless. Increase in consumer spending leads to more labor supply by the workers. However, their preference for either consumption or leisure depends on the current market wage. The three variables will determine the decision of workers. Workers are the main suppliers of labor in the market. However, their decisions depend of preferences and price. Therefore, Consumption directly affects the supply of labor in the market. However, the market wage is still a determining factor.
Workers’ decision to supply labor or not depends on a combination of both their indifference curves and their budget constraints. In most cases, workers will maximize their utility based on the preferences of having more free time or more money. Desire to have more money may arise from the fact that consumer spending is high. This will push the workers to work more thereby increasing labor supply. Increase in wages will cause labor to both increase (substitution effect) and decrease (income effect). Therefore, when wages increase, the combined effect of the substitution and income effect is that the workers will choose more consumption.
The effect on labor and leisure are uncertain. However, if we assume a stronger obstruction effect, the workers might choose to work more. With increase in the wages, the workers can now afford more goods and services. Higher wages might also give the workers more incentive to work. Effect of income distribution on the labor market Distribution is the branch of economics that deals with the allocation of the among various inputs, or factors of production. Distribution can also the distribution of national income results to deficits in the labor market such as high unemployment, underemployment and informality.
Inequality in the distribution of sectional income negatively affects the labor market in terms of its influence on labor supply by the workers. Some areas will lack enough supply of labor for production of goods and services. For instance 8 percent of the population in Latin America is unemployed, while about 50 percent of the workers were informal as by 2009. These outcomes are most likely due to inequality in the distribution of income. Income inequality is the dispersion of annual incomes across household. Inequality affects other economic variables such as tax revenue and government spending.
All this have effects on the labor market. Distribution of Labor income also affects household and firms. Poor distribution of national income affects workers. Those receiving more income will shift their spending thus increasing consumption while those earning less will tend to consume less. A decrease in the labor income might result in an increase in income inequality. A certain level of Inequality in income distribution also affects economic growth of a particular country. However, the effects of such high levels of inequality may have pronounced effects in developing countries as compared to developed countries.
Therefore, unequal distribution of national income ay affect the supply of labor services in a particular country. Effect of exchange on the labor market Exchange involves the buying and selling of goods in the market. Exchange of goods and services significantly affect the labor market. For instance, a change in the price of a good produced in the market can shift the labor demand curve to the right or left. This directly affects the demand for labor in the labor market thereby altering the equilibrium wage and employment. For the workers, both the wages and employment depend on the behavior of the labor market.
An increase in the demand or labor will increase the equilibrium wage and employment. Market wages and prices play a role in determining labor supply and demand. Effect of production of goods and services on the labor market Production combines input factors such as labor and capital to produce goods and services. This means that there is a relationship between inputs and the goods and services. Study of labor economics involves monitoring the labor market as well. It is clear that the labor market involves inversion of the goods and services market. In labor economics, individual buyers of the goods and services become the suppliers of abort.
The firms that sell goods in the market become the buyers. Firms need workers to produce goods and services. This means that the firms will enter into the labor market and buy the labor. Workers on the other hand, enter the market with the idea of how much they want to earn and how many hours they want to work. Workers supply the labor. The level of production in will therefore determine the magnitude of the demand and supply of labor. Combination labor supply and labor demand govern the behavior of the labor market. This means that both demand and supply of labor are important in the study of labor economics.
This is because of their relationship with production of the goods and services. Production affects labor force therefore becomes influential in the study of labor economics. Effect of public finance on the labor market governments and the effects on the economy. Public finance can have effects on labor economics through its influence on labor force specifically labor supply. This is in terms of the impact of taxation on labor force and labor supply. There are gender differences in the effect of taxation on labor supplies. Studies show that taxation has little effect on male labor than in women.
This is mainly because of lifestyle events whereby men show over the lifestyle a stable pattern of full time employment while women register breaks especially when they have children. Predicting how government taxation affects labor force is one of the most important concerns of labor economics. However, it is important to understand that standard economic theory does not predict the response of labor supply to income taxation by government. According to pure economic theory, a tax rate increase may lead a rational person to work less, more or the same. This means that a person may respond to income taxes indifferent ways.
Labor supply arises from a balancing act between after tax income and leisure. When taxes increase, after-tax income reduces shifting the balance to more leisure and less work. This means that the supply of labor would consequently reduce. However, the increase in tax lowers after tax income and this may shift the worker into a different direction. Specifically the worker may value income more highly when the income falls. In this case, both the income and substitution effects are at work. Which way the combination works depends on specific preferences. For some preferences, labor supply increases with taxation hill in other it decreases.
Other preferences result in complex relationships between the net wage and labor supply. Conclusion Labor economics seeks to understand the functioning and dynamics of the markets for wage. Its studies labor markets function through the interaction of workers and employees. In this regard, it is also important to evaluate some of the factors that may influence labor economics. From this paper, it is clear that the five main divisions of economics influence the labor market significantly. Consumption, production, exchange, public finance and income distribution all affect the labor raked.
Their importance to the study of labor economics is because of their influence on supply of labor services, demand of labor services, wages, employment and income of workers. References Benjamin, D. (1992). Household Composition, labor Markets, and Labor Demand: Testing for Separation in Agricultural Households Models. Econometrics, Volvo. 60, No. 2, 287-322. Biracial, N. (2007). Income Distribution: Effects on Growth and Development. Center for Global Development. Gorton, M. (2006). Leisure, Household Production, Consumption and Economic well being. Copenhagen: University of Copenhagen. Hickman, J. (1993).
What Has Been Learned About Labor Supply in the Past Twenty Years? American Economic Review, Papers and Proceedings, 83(2), Income and Rising Inequality. Feeder Reserve Bank of Cleveland. Manikins, C. (2012, August 23). Income tax and labor supply: Let’s acknowledge what we don’t know. VOGEL]. Retrieved at http://www. Vogue. Org/article/income-tax-and-labor-supply-let-s- acknowledge-what-we-don-t-know Mauricio, R. (2012). Labor Market and Income Distribution in Latin America in Times of Economic Growth: Advances and Shortcomings. International Conference in honor of Roberto Franken, 11-12 October 2012. Buenos Aries, .
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