Understanding Labor Markets and Wage Factors

Income and Wage Determination in Labor Markets

Income

Income: Total income received by owners of productive factors.

Income Distribution

Income Distribution: How income is distributed among the owners of factors in the form of productive wages. It is conditioned by wage differentials and the distribution of wealth.

Salary

Salary: The price of a job. The company hires workers, and their wages are lower than the value that has been produced.

Labor Demand

Labor demand by firms depends on: wages, productivity, and prices of goods produced.

• Wages: An increase in wages reduces the demand for labor because it is more expensive to hire.
• Productivity: Higher wages can be offset by greater productivity.
• Price: If the price of goods rises, business productivity will increase.

Labor Demand: The number of people that companies are willing to hire.

Payroll Market

Payroll Market: Joint income of workers who receive cash for the provision of labor services.

Real Wage

Real Wage: Wage divided by the monetary price.

Labor Requirements

Labor Requirements: It depends on factors such as the choice between work and leisure and the opportunity cost of leisure time (wages).

Job Offer

Job Offer: The number of hours an individual is willing to devote to market activities, according to salary. It reflects how workers respond when choosing between work and leisure time, given a salary. It depends on:

• Salaries
• Population
• Activity Rate

Market Disequilibria

Disequilibria in the marketplace are explained by imperfections (unions and firms have market power), rigid organizations (companies do not decide how many workers to hire daily), and public sector interventions (legislation infers).

Frictional Unemployment

Frictional Unemployment (by rotation or search) and displacement works: (Because of problems matching the characteristics of job sites and workers) It has been shown that the number of jobs matches the number of people willing to work.

Unemployment and Employment Rates

Unemployment Rate: Unemployed / Labor Force * 100

Employment Rate: Employed / Working Age Population * 100

Activity Rate: Labor Force / Total Population * 100

Wage Differentials

Wage Differentials: Have their origin in different studies and experiences, and the differences between jobs.

Human Capital

Human Capital: Accumulation of investments in education and on-the-job training.

Compensating Differences

Compensating Differences: Wage differences exist to compensate for non-monetary characteristics of different jobs.

Financial Capital

Financial Capital: Physical capital to afford.

Interest

Interest: Payment for services or capital as a loan. Influenced by:

• The risk of the operation
• The guarantee offered by the applicant
• The period for which the loan is granted

Workforce Composition

Workforce

• Occupied: Employee or self-employed.
• Unemployed: Employees who are actively seeking work.

Inactive Population: People who do not wish to seek employment. People who only consume.