Econ labor market policy evaluation

ECON 370 - Chapter 1 - Labour

Economics

Maggie Jones

The Canadian Labour Market

At home exercise:

1 Go to Stats Canada Census Profile, 2016: https://www12.statcan.gc.ca/census-recensement/2016/ dp-pd/prof/details/page.cfm?Lang=E&Geo1=PR&Code1=01& Geo2=&Code2=&SearchText=Canada&SearchType=Begins& SearchPR=01&B1=All&TABID=1&type=0

2 Examine how these ratios look for median income in 2016

Variation in Earnings

I Variation in earnings is due to both wages and hours worked I These are two of the fundamental outcomes studied by labour

economists

I Hours worked are typically modelled as a choice by individuals regarding their optimal labour supply

I Our discussion of wages will be grounded in the competitive labour markets model

The Competitive Labour Market

The Supply and Demand Model:

Workhorse of Labour Economics

I Fundamental outcomes: employment and wages I We can use tools from previous economics classes to study

quantity and prices in the labour market I Quantity = employment (how much to work) I Prices = wages (what is the price of work)

I This comes together in the neoclassical supply and demand model I assumptions about how buyers and sellers respond to prices

and other factors I assumptions about how buyers and sellers interact, and how

the market determines levels and terms of exchange

Wages & Employment in a Competitive

Labour Market

I Labour supply curve depicts the amount of labour individuals would like to sell at each wage rate (workers’ side)

I Labour demand curve depicts the amount of labour firms would like to hire at each wage rate (firms’ side)

I Equilibrium given by intersection of supply of and demand for labour and generates a wage and level of employment

I In a competitive labour market we assume workers and firms take wages as given and then make decisions based on their supply and demand functions

Wages & Employment in a Competitive

Labour Market

W ag es

Employment

Implication 1:

Wages will equalize in markets with homogeneous workers & jobs

W ag es

Employment

W ag es

Employment

Implication 2:

I Absence of involuntary unemployment (i.e., you would like to work but can’t find work at the going wage)

I In equilibrium, no workers who are currently unemployed would WANT to work at the going rate

Implication 3:

I No queues or rationing (all jobs are equally satisfactory)

Do Implications Align With Reality?