Labor Economics Definition

Cite this article as:"Labor Economics Definition," in The Business Professor, updated March 21, 2019, last accessed October 28, 2020,


Labor Economics – Definition

The economic behaviour of the owner (employer) and workers in relation to fluctuating prices, profits, salaries, and conditions of working is studied under the head of Labor Economics. The working mechanism of labor market depends on the interaction between the boss and the worker. Labor economics help to understand labor demands in relation to their working services. The labor economics also support to interpret and understand different wage models that are followed in various countries according to their domestic labor market principles and agreements. Labor economics assists to understand all types of efforts made either physically or mentally by labor and working professionals in the production of goods or in the delivery of their skilled services.

A Little More on Labor Economics

Labor economics guides to understand the working mechanism of labor service providers who are known as employment providing agencies. It helps to understand the employers demands as well who requires the services of labor. Similarly, labor economics guides to understanding the wages structures, income levels, and employment requirements. In labor economics, works performed by human beings are considered and evaluated as labor. This also helps to analyze and understand all wage-related dynamics and functions. The concept of labor economics can be understood well with the help of micro and macro analysis

Labor economics has two aspects to be understood. It is observed as the successful application of macroeconomic principles and microeconomic techniques in labor market. Microeconomic patterns focus on the study of individuals role and the role of individual organizations in regard to the labor market. In contrast, macroeconomic techniques evaluate the interrelations among all labor market participants that include the labor, the financial market, goods market, and the international trade market. Thus, this assists to investigates the influence of various market factors on macro variables. These factors include the gross of domestic products, average income, various employment levels, and participation rates.

There can be a single employer for certain labor markets; hence does not fulfil or comply with competitive assumptions that are present in the neoclassical model. The monopsonistic model for labor market provides lower employment quantity and lower wage rate equilibrium and have been mentioned by a competitive model.

International journals concerning labor economics often investigate certain aspects of the labor market that affect the economy. such researches also investigate and evaluate the social aspects and private behaviour related to labor economics. The research determines different aspects concerning with labor economics. This includes the demand and supply ratio of labor services, economic distribution, personal economics, the role of labor unions, demographics, collective bargaining and overall situation of markets. Labor market research publishes twice in a year in international labor economic journals and such research papers also examine the role of economic theory in connection with econometrics paradigms to evaluate any policy issues.

References for Labor Economics

Academic Research on Labor Economics

Empirical strategies in labor economics, Angrist, J. D., & Krueger, A. B. (1999). In Handbook of labor economics (Vol. 3, pp. 1277-1366). Elsevier. This research investigates and presents an overview related to practical and methodological problems and estimated casual relationship issues as these are the chief interest of labor economists. This involves identification, data gathering and evaluation of problems. The discussion focuses on four strategies of identification, five empirical instances, the impact of schooling, labor unions, military service, immigration and the size of the class. This also highlights methodological points. The discussion examines certain variables related to control, outcome and effects. The research evaluated various data collection methods and attention is given to empirical examples and the authenticity of data concerning with labor market.

The labor economics of paid crowdsourcing, Horton, J. J., & Chilton, L. B. (2010, June). in Proceedings of the 11th ACM conference on Electronic commerce (pp. 209-218). ACM. This paper reviews a model related to workers supplying services against crowdsourcing projects. The significant parameter of this labor supply framework is to estimate the reservation wage of a worker. This model has been tested in different work and payment related conditions. Labour was paid little against their time consumed on work. Some Interesting facts related to ā€œtarget earnersā€ appear as the target earning subject earns more according to their target. The model presented in this research calibrates with pooled data gathered from both experiments. The basic labor wage is $1.38 per hour.

Labor economics and the psychology of organizations, Lazear, E. P. (1991). Journal of Economic perspectives, 5(2), 89-110. This paper articulates the struggles of economists trying to understand how institutions within organizations work that is related to the labor market. Some of the issues discussed include pay compression, discontinuity in pay promotions, evaluation related to a job promotion, bonuses and penalties and the role of pa to motivate employees.

The development of the neoclassical tradition in labor economics, Boyer, G. R., & Smith, R. S. (2001). ILR Review, 54(2), 199-223. The research examines the role of increasing neoclassical theory in the post World War II period and the impact of theory. The research investigates the slow emergence of neoclassical theory and institutional influence from the late 19th to mid 20th centuries. This paper highlights the role of economics pioneers and neoclassical labor in the last three decades. Neoclassical economists are paying more attention to intellectual breadth influencing the public policy. They also pay attention to issues related to institutionalists as well as neo-institutionalists.

The theoretical foundation of industrial relations and its implications for labor economics and human resource management, Kaufman, B. E. (2010). ILR Review, 64(1), 74-108. The paper identifies some of the principals that lay grounds for industrial relations. The researcher argues that labor is not a commodity but human beings and two variables are dependent on each other known as employment relationship and labor problems. The writer uses the above-mentioned concept and perspective of institutional economics to make a theoretical model. Thus highlights labor problems and major characteristics of the employment relationship. The study also highlights the shortcomings associated with managing human resources and labor economics. This model is knowns as ā€œfundamental theoremā€ Ā to build industrial relations and highlights how economic efficiency can be enhanced through human welfare and labor protectionism.

Field experiments in labor economics, List, J. A., & Rasul, I. (2011). In Handbook of labor economics (Vol. 4, pp. 103-228). Elsevier. There are central advantages of applying field experiments in the context of labor economics. (1) This methodology helps to use the certain economic theory that provides chances to alternate hypotheses, (2) to combine certain economic environment principles that help to understand underlying procedures, (3) and contribute to gathering primary data to work with practitioners. Individual case studies in field experiments help to highlight labor economic issues. The results of field experiments help in the decision-making process, to increase human capital potential, to understand overall organizational behaviour and to note labor supply demand.

Labor economics, Freeman, R. B. (1997). NBER Reporter, 1. This paper discusses Labor Economics and the evolution of Macro-economics in detail. It is widely used by labor researchers of NBER.

Expanding the behavioral foundations of labor economics, Kaufman, B. E. (1999). Industrial and labor relations review, 361-392. The writer proposes certain modifications associated with psychological assumptions to make a logical model related to the human agent (labor) that lay the foundation for theoretical work associated with neoclassical labour-related economics. There is a model known as a rational choice that evaluates human emotions, psychology, and cognition. There are certain problems in previous theoretical studies that need to be addressed. improvements can be achieved by initiating further psychological investigations and economic analysis. No doubt, using a model based on rational choice is a strong conceptual device, however, it does not highlight work behaviour of labor thus shows the need for further investigation in behavioural science.

Homework in labor economics: household production and intertemporal substitution, Rupert, P., Rogerson, R., & Wright, R. (2000). Journal of Monetary Economics, 46(3), 557-579. Intertemporal replacement elasticities gathered from models related to standards of human life are not free from bias as it ignores work-related changes performed at home. Hence, the model related to human life standards has been extended to carry this research and it includes work at home. On the basis of estimations, a quantity of threefold of further data has been included in the surveys. The result so this procedure show that downward bias exists at a larger scale.

Labor economics and the nonprofit sector: A literature review, Steinberg, R. (1990). Nonprofit and voluntary sector quarterly, 19(2), 151-169. This paper reviews and combines economics literature that is concerned with volunteers use and employees role in nonprofit activities. The investigation shows the role of economic motivations behind accepting volunteers and the interactions related to gifts, money, time and the commercial importance of doing volunteer labor. The research further highlights the scale of wage variations in nonprofit organization, profitable organizations and inequality of employment for minorities and female.

International Labor Economics: Presidential Address to the Society of Labor Economists, Austin, Texas, April 20, 2001, Hamermesh, D. S. (2002). Journal of Labor Economics, 20(4), 709-732.The writer argues that to evaluate parameters related to the labor market, the high dependence on non-US labor economic data would help to analyze changes and effects on the labor policies of the US market. Foreign experience help to evaluate the shock of external labor costs that further assist to know labor demands. Foreign policies are a great source to change any labor policies and this often happens to American counterparts. Foreign data is greater in scale and suitable for inferring behaviour. Empirical examinations have proved a great help to evaluate subsequent impact.

Institutional labor economics, the new personnel economics, and internal labor markets: a reconsideration, Osterman, P. (2011). ILR Review, 64(4), 637-653. The writer proposes reconsideration to institutional economics for labor after a thorough examination of labor policies. Since the 1990s, NPE (New Personnel Economics) has emerged as subfield to labor economics. The research highlights the emergence of ILMs known as (Institutional Labor Markets). ILM indicates the difference between the interests of union and organization, professionals, organizational objectives and deteriorated High-Performance concepts With the help of ILM, organizations use certain strategic options that demand high performance from workers, rely on union leaders and the initiation of promotion rules to create strong working rules and environment. Without a doubt, some other conventional NPE conditions remain important.


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