Session 8 Flashcards
Why did working hours decrease?
- Production in several industries has become less labor-intensive and more capital-intensive (e.g., automation) -> At the core of how firms optimize their production, given the technologies available and the cost of production inputs
- As people escaped poverty and became richer, their demand for leisure time increased This concerns the individual choice of (potential) workers
Income effect/substitution effect?
- Income effect: the effect that the additional income would have if there were no change in the prices (in this case, wages). The income effect induces workers to work less as leisure is a normal good
- Substitution effect: the effect that is only due to changes in the prices, holding utility level constant. The substitution effect induces workers to work more as working becomes more valuable
Labor force participation?
captures the share of population that is interested in working – which can be affected by various socio-economic and cultural factors.
-> Labor force/Working-age population x100
- Working-age population: those aged 15-64 who are not in the military or institutionalized (e.g. people in prisons, mental health facilities, or nursing homes) (Age threshold varies!)
- Employed: working-age people who are working
- Unemployed: working-age people without jobs who are actively searching for work and available to work if they find one
- Labor force: the employed plus the unemployed
Unemployment rate?
Unemployed/Labor force x100
-the percentage of the labor force that is unemployed
Frictional unemployment and its sources?
-occurs due to the time it takes for employers to search for workers and for workers to search for jobs.
- Job searching: it takes time for workers and employers to find positions that match their skills, preferences, and salary expectations
- Skills mismatch: if the workers’ skills do not align well with available job openings, they take additional time to realize this and seek retraining
- Unemployment insurance: while it provides a safety net, unemployment insurance can incentivize workers to take longer in their job search
Structural unemployment and its sources?
- occurs when wages don’t fall to bring labor demand supply into equilibrium.
- Efficiency wages: employers might pay wages higher than the equilibrium level to boost worker productivity, morale, or loyalty
- Wage stickiness: often, wages do not adjust downwards to changes in labor market conditions (e.g. decrease in demand for firm’s products). This can be due to long-term employment contracts or employee resistance to wage cuts
- Unions: labor unions often bargain for higher wages for their members
Policies affecting frictional unemployment?
- Job search assistance: helps workers reduce the time spent to find a job
- Retraining programs: mitigates issues due to the skills mismatch
- Transportation subsidies: helping workers reach potential job locations can help them consider more job options
Policies affection structural unemployment?
- Reducing union power: policies that limit the bargaining power of unions can help in bringing wages closer to market equilibrium
- Inflation: because wage stickiness often applies only to nominal wages, reduction in real wages due to inflation softens the “price floor”
- Payroll tax cuts: this lowers the overall cost of hiring, making it more financially feasible for employers to hire or retain workers
What causes the gender pay gap?
- Over 20th century, the gender earnings gap from differences in productive characteristics like education and work experience has largely closed
- Remaining gap is largely due to the disproportional penalty on flexible and shorter work hours in many fields
-> 40-hour-per-week workers often earn much more than double compared to 20-h-counterpart
Child penalty? Explanations?
- The child penalty underscores that limited flexibility that women face is a big driver of the remaining gender inequality. Question: what is the differential impact of having children on labor market outcomes for women compared to that for men?
-> Focuses on outcomes (employment rate) after the first child
Explan.:
- Biology: evidence based on adoption / lesbian couples suggest that this plays a very limited role
- Gender norms and culture: child penalties correlate on survey responses on whether women with children should work
- Government policies: taxes, transfers, family policies (parental leave, childcare provision)
Automotation and AI? Effects
- Automation is not a new phenomenon!
-> Plenty of historical examples
-> Automation of spinning and weaving during the early Industrial Revolution
Effects:
- Displacement effect (automation directly replaces labor)
- Productivity effect ( automation increases productivity, economy expands and increases the demand for labor in non-automated task (ATMS))
- Reinstatement effect (creation of new tasks in which labor has a comparative advantage (new jobs in burgeoning of farm equipment)
- Skill-Biased Technological Change (SBTC)?
hypothesis that new technologies increase the productivity of skilled workers more than those of less skilled workers
- SBTC implies that technological changes lead to higher wage inequality
- SBTC associated with computer technologies is often cited to explain the growing wage inequality since 1980s
Which group of tasks can not be substituted by computers?
i. Abstract tasks that are characteristic of high-skilled occupations (e.g., managerial tasks)
ii. Manual tasks that are characteristic of less-skilled occupations (e.g., cleaning and janitorial work)
-> Because abstract and manual tasks are generally at the opposite ends of skill spectrum, computerization leads to job polarization
