THE LABOR MARKET

Labor, in economic terms, is just like any other product. Everyone is their own company, selling their product, which is their work, to companies who are willing to buy it, after negotiating a price, which is the wage. And as all other products, labor conforms with economic models. As the price of labor goes up, the amount of labor supplied is greater. This is very simple, when you get paid more, you lose more by not working, so you work more. People work so that they can spend that money for their own pleasure. Remember the concept of utility? Well, workers spend their their money on things that are of utility to them, activities that satisfy them. When people earn a relatively large amount of money, they have more money to spend on more efficient activities for having fun. For example, when you have enough money, you'll be able to buy a video game system, which you can have a lot of fun with as opposed to walking around outside to have fun.

There are nonmarket issues pertaining to labor. One important nonmarket activity is illegal activity. Why do people commit crimes? People commit crimes because they feel they can gain more by committing them then by not committing them. Those who deal in drugs and prostitution, for example, are generally youth in the slums of the world. In their world, they are in a bad condition and unlikely to get a good education and a well-paying job. The choices they have then are basically to commit crime and make a lot of money or get some low-paying job. Sure, maybe you may get arrested or hurt, but that risk is worth taking. Especially after drugs were made illegal, their activities are outside of any sort of regulation. The demand and price is high, driven up by the law, so they sell the drugs. Often the ones selling the drugs are smart and risk-taking business types. However, since they don't have the opportunity to open up a real, beneficial business, they choose the other, easier alternative. On the other hand, those people living in the middle and upper classes already have a lot. They have access to opportunities and they would have a lot to lose by committing crime and a lot to gain by not committing crime.

Another nonmarket issue is government welfare policies. Sometimes, government-imposed taxes are so high that the worker actually gains very little from working more. In fact, in some countries, cases have occurred in which workers simply stopped working. There was no point in working: the pay, after taxation, is not significant while the government pays for your basic living very well anyways. Thus, governments must find a balance between helping the needy and encouraging people to work hard. Government policy determines the elasticity of the labor supply curve.

Firms hire people when they see that there is to be profit made. A person that is hired means an increase in productivity. The hiring company makes sure that the person who is hired can help the company generate more worth of productivity than the worker's cost. When it is apparent that the company's workforce is costing more than it is producing, then the company's only choice is to cut jobs or face its own failure. Another trend in labor is that marginal revenue product(MRP) generally decreases with each additional worker. MRP is the amount worth of revenue each new worker can earn the company. This is because the workers are working with a limited amount of resources. The workers must share a company's resources and if the company wants to expand worker productivity, it must buy more resources for each worker to use.

There are many different factors that can change the labor market. A change in the demand of a company's products will obviously lead to that company hiring more workers to produce more of its successful product. Another is changes in the company's other, non-labor resources. When the company buys more resources for each of its workers to work with, then each worker can produce more and work more efficiently. This cuts costs and paves the way for the company to hire more workers to fully exploit the resources or machines that they've acquired. Technology also changes demand for labor. Technology often tends to shift jobs from one industry to another. In the early days of history, almost all labor was agricultural. Later, as agriculture advanced, less people were needed on the fields and people moved to cities. When industrialization came, city people lost their jobs to machines. However, these jobs were transferred to people who make the machines themselves. In recent decades, we have seen another development: the growth of the service sector. Many jobs are now being given to people who do not actually make a physical product, but provide service to others.

Labor, unlike other resources, are subject to very powerful outside forces. Labor is composed of people and that in and of itself makes labor an extremely volatile subject. People are not exploited like any other resource. People are emotional beings and demand to be happy. This has led to several government regulations of the labor market, such as the setting of a minimum wage. There are also labor unions that, being powerful enough, can act as a monopoly supplier of labor.