Labor and Employment

 Labor
 Is the amount of physical, mental and social effort used to produce goods
and services in an economy. It supplies the expertise, manpower, and
service needed to turn raw materials into finished products and services.
In return, laborers receive a wage to buy the goods and services they
don't produce themselves. Those without desired skills or abilities often
don't even get paid a living wage. Many countries have a minimum
wage to make sure their workers earn enough to cover the costs of living.
Labor is one of the four factors of production that drive supply. The other
three are:
1. Land- This is short for the natural resources or raw materials
in an economy.
2. Capital- This is an abbreviation of the capital goods, such as
machinery, equipment, and chemicals that are used in
production.
3. Entrepreneurship- This is the drive to profit from innovation.

 Labor is measured by the labor force or labor pool. To be considered part

of the labor force, you must be available, willing to work, and have looked
for work recently. The size of the labor force depends not only on the
number of adults but also how likely they feel they can get a job. It is the
number of people in a country who are employed plus the unemployed.
 Labor is a very important resource

 Employment

 Employment is a relationship between two parties, usually based on

a contract where work is paid for, where one party, which may be
a corporation, for profit, not-for-profit organization, co-operative or other
entity is the employer and the other is the employee.
 Employment can be expressed in number of people working or in total
working hours. A mixed measure is the number of hours divided by
standard working hours to give a full-time equivalence to jobs.
 Employees work in return for payment, which may be in the form of an
hourly wage, by piecework or an annual salary, depending on the type of
work an employee does or which sector she or he is working in.
 Employment is typically governed by employment laws, regulations or
legal contracts.
 Labor Problems

When we talked of labor problem, we are referring here to a working relationship

which is considered below the ideal. Labor problems represent conflicts on social reality
with social ideas that normally rise out of employment. Unemployment is a classical
example. A problem would exist if people could not find the job that they have been
preparing for. Unemployed people are, thus, considered part of the labor problem.
It is the problem of improving the conditions of employment of the wage-earning
classes. It encompasses the difficulties faced by wage-earners and employers who
began to cut wages for various reasons including increased technology, desire for lower
costs or to stay in business. The wage-earning classes responded with strikes, by
unionizing and by committing acts of outright violence. It was a nationwide problem that
spanned nearly all industries and helped contribute to modern business conditions still
seen today.
Possible causes include the failure to account for the negative externality of
reproduction in the face of finite natural resources which results in over-supply of labor
and falling living standards for wage-laborers, depersonalization by machines and poor
working conditions.

Areas of Labor Problem

A. Unemployment and Underemployment

 Unemployment occurs when a person who is actively searching for
employment is unable to find work.
 Individual suffers economic and social dislocation if he is unemployed.
 Unemployment is often used as a measure of the health of the
economy.
 The most frequent measure of unemployment is the unemployment
rate, which is the number of unemployed people divided by the number
of people in the labor force.
 Underemployment is the under-use of a worker due to a job that does
not use the worker's skills, or is part time, or leaves the worker idle.
Subdivided into 2:
1) Visible Underemployment- number of people working
less than 40hrs per week and wanting additional work.
2) Invisible Underemployment- number of people working
40hrs or more per week and still wanting additional work.
 B. Inadequate Wages
 Wages and earnings that fail to provide a minimum of comfortable
living can be regarded as inadequate.
 Inadequate wages can result from the inability of wages to catch up
with the increase in prices.
 It can also result from the inability of the worker to supply himself with
the necessary skills and intelligence to perform work needed by
enterprises and firms.

C. Industrial and Labor Management Conflicts

 Refers to disputes between an employer and a group of employees.
 An organized labor union is usually involved in labor- management
conflicts, though these conflicts can be as basic as two employees
approaching a supervisor with a shared complaint about overtime or
some other working condition.

D. Economic Insecurities
 Describes the risk of economic loss faced by workers and households
as they encounter the unpredictable events of social life.
 Empirical research reveals that high levels of economic insecurity are
among those who are in low-income households.

Subsistence Theory of Wages

The Subsistence Theory of Wages, also known as the "Iron Law of Wages," was
an alleged law of economics that asserted that real wages in the long run would tend to
the value needed to keep the workers population constant.

According to the “iron law” theory, wage levels tend to fluctuate around the
minimum necessary for providing the means of existence, influenced by the natural
changes in the work force: as the birth rate among the workers rises, the supply of labor
begins to exceed the demand for it, which leads to a decline in wage rates to the
necessary minimum and even below it. The decline in the number of the working
population resulting from this leads to a reduced supply of labor and thereby to a rise in
wage levels.
Factors Affecting the Theory

1. The Laizzez Faire Theory

 French phrase which means “don’t interfere”.
 An economic system in which transactions between private parties are free
from government intervention such as regulation, privileges, tariffs and
subsidies.
 This theory states that individuals ought to be free to act in their own self-
interest. They must be allowed to move about without interference, choose
their own business and occupation, gain wealth, and do whatever they like
with their profits and property.

2. Thomas Malthus
 Thomas Robert Malthus’ population theory was an important and integral
part of the classical liberal economic and social doctrines.
 His analysis contributed an explanation of the long-term changes in the
aggregate supply of labor and the wages accompanying it.
 The Malthusian Theory of Population is a theory of exponential population
growth and arithmetic food supply growth.
 The Malthusian theory explains the relationship between the growth in food
supply and in population. It states that population increases faster than food
supply and if unchecked leads to vice or misery.

3. David Ricardo
 He took over and systematized Malthus’ iron law of wages.
 Wages, he concluded, tended to equal the cost of reproducing it. Wages
could never be far from the level necessary to maintain a minimum
subsistence because of the demand and supply in the labor market. Higher
pay would increase the labor supply, and lower pay would decrease it.
 He maintained that the cost of subsistence would depend mainly on the price
of food and other farm products.
 He developed the classical theory of comparative advantage in 1817 to
explain why countries engage in international trade even when one country's
workers are more efficient at producing every single good than workers in
other countries.
 He demonstrated that if two countries capable of producing two commodities
engage in the free market, then each country will increase its overall
consumption by exporting the good for which it has a comparative advantage
while importing the other good, provided that there exist differences in labor
productivity between both countries.
The Keynesian Theory

 Keynesian theory is a product of the Great Depression of the 1930s. It was

John Maynard Keynes' assertion that expenditure, meaning how much an
economy spends on goods and services, is the key to economic stimulation.

 Keynesians identify four components of expenditure:

1) Consumption, the most important component, which refers to what
consumers spend;
2) Investment, which refers to what businesses spend on increasing
capacity;
3) Government purchases, meaning what all levels of government buy
from the private sector; and
4) Net exports, which are what the nation sells abroad, less what it
buys from other nations.

 Because Keynesian theory sees spending as the driver for economic growth,
Keynesians consider personal savings - whatever a consumer earns but does
not spend - to be a drag on the economy.

 Keynesians see one person's consumption as someone else's income - then

someone else's, then someone else's. As a result, there is a multiplier at work
that turns every dollar of individual expenditure into more dollars of national
wealth.

 The main point related to starting point of Keynes theory of employment is the
principle of effective demand. Keynes propounded that the level of employment
in the short run is dependent on the aggregate effective demand of products and
services.

 Keynes has used two key terms, namely, aggregate demand price and
aggregate supply price, for determining effective demand. Aggregate demand
price and aggregate supply price together contribute to determine effective
demand, which further helps in estimating the level of employment of an
economy at a particular period of time.

 Keynesian theorists argue that the aggregates of labor markets is no self-

correcting. They advanced two reasons: (1) the forces causing & maintaining full
employment is largely outside of labor markets, (2) the self correcting mechanism
has not proved effective.
 Objective and Policies of Labor and Employment

 Major Objectives:

1. The creation and generation of gainful employment and livelihood opportunities.

2. The reduction of unemployment and underemployment.
3. The promotion of employment through the acceleration of work placement
efforts to effectively link labor supply with labor demand.
4. The improvement of working conditions and enhancement of the working man’s
welfare.
5. The promotion and maintenance of industrial peace.
6. The enhancement of labor productivity.

 Strategies and Policies:

a. Generation of More Employment and Livelihood Opportunities

 The refocusing of economic priorities which is an essential component of
the country’s recovery program is expected to generate more employment
and provide additional livelihood opportunities as well as better incomes
particularly in the countryside.

b. Promotion of Employment
1. Local Employment
 Local placement offices will be strengthened particularly through the
continued operation of an efficient labor-market information system
to accurately monitor the employment situation.

2. Overseas Employment
 To promote the responsiveness of local labor supply to overseas
demand along with the continuous development of the domestic
market’s ability to absorb labor.

c. Protection of Workers
 Appropriate policies and programs will be adopted to ensure every
working man of just, reasonable and humane terms & condition of work.
d. Maintenance of Industrial Peace
 As a measure to ensure industrial viability and stability of employment, a
labor relations policy conducive to a healthy labor-management
relationship will be enforced vigorously.

e. Enhancement of Labor Productivity

 Within the framework of the national productivity improvement program,
efforts to enhance worker’s productivity will be stepped up.

f. Development of Appropriate Technology

 The policy in this area will be directed to the reconciliations of the aims of
technology development with employment objectives.