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Labor Economics: Key Concepts Explained

This document provides an introduction to key concepts in labor economics. It discusses how labor economics builds on microeconomic foundations and outlines some key differences between labor markets and other markets. It also summarizes concepts from positive economics, like scarcity and rational self-interest, and normative economics concepts like Pareto efficiency. Finally, it discusses how markets can fail to achieve Pareto optimal outcomes and lists several types of market failures.

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9 views27 pages

Labor Economics: Key Concepts Explained

This document provides an introduction to key concepts in labor economics. It discusses how labor economics builds on microeconomic foundations and outlines some key differences between labor markets and other markets. It also summarizes concepts from positive economics, like scarcity and rational self-interest, and normative economics concepts like Pareto efficiency. Finally, it discusses how markets can fail to achieve Pareto optimal outcomes and lists several types of market failures.

Uploaded by

NimiParvathy
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

Introduction to Labor

Economics

Chapter 1
The study of labor economics requires a
solid foundation in microeconomics.

Review material may be found at:


[Link]
Microeconomics background
 The study of labor economics requires a
solid foundation in microeconomics
 Review material may be found at
[Link]
Labor market vs. other
markets
 labor services are rented, not sold,
Labor market vs. other
markets
 labor services are rented, not sold,
 labor productivity is affected by pay and
working conditions,
Labor market vs. other
markets
 labor services are rented, not sold,
 labor productivity is affected by pay and
working conditions, and
 the suppliers of labor care about the
way in which the labor is used.
Positive vs. Normative
Economics
 Positive economics - an attempt to
describe how the economy operates
using the scientific method.
Positive vs. Normative
Economics
 Positive economics - an attempt to
describe how the economy operates
using the scientific method.
 Normative economics - relies on value
judgments to evaluate the overall
functioning of the economy.
Positive economics
 abstraction
Positive economics
 abstraction
 ceteris paribus assumption
Positive economics
 abstraction
 ceteris paribus assumption
 test of model based on predictions, not
assumptions
Fundamental positive economic
concepts
 scarcity
Fundamental positive economic
concepts
 scarcity
 rational self-interest
Fundamental positive economic
concepts
 scarcity
 rational self-interest
 utility maximization
Fundamental positive economic
concepts
 scarcity
 rational self-interest
 utility maximization
 profit maximization
Normative economics
 interpersonal comparisons of utility are
impossible
Normative economics
 interpersonal comparisons of utility are
impossible
 Pareto improvement
Normative economics
 interpersonal comparisons of utility are
impossible
 Pareto improvement
 Pareto efficiency (Pareto optimality)
Normative economics
 interpersonal comparisons of utility are
impossible
 Pareto improvement
 Pareto efficiency (aka Pareto optimality)
 problems with the Pareto optimality
criterion
Markets and Pareto optimality
 under ideal conditions, markets result in
Pareto efficient outcomes
Types of Market failure
 imperfect information,
Types of Market failure
 imperfect information,
 transaction barriers,
Types of Market failure
 imperfect information,
 transaction barriers,
 price distortions,
Types of Market failure
 imperfect information,
 transaction barriers,
 price distortions,
 the nonexistence of markets when
externalities are present,
Types of Market failure
 imperfect information,
 transaction barriers,
 price distortions,
 the nonexistence of markets when
externalities are present,
 public goods,
Types of Market failure
 imperfect information,
 transaction barriers,
 price distortions,
 the nonexistence of markets when
externalities are present,
 public goods, and
 capital market imperfections.
Equity vs. Efficiency
 Attempts to make market outcomes
more equitable often results in the loss
of economic efficiency.

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