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Chapter 2 - Labor Econ Chapter 2-Every society must make...

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Labor Econ Chapter 2 -Every society must make basic decisions on what and how much to produce, how to produce it, and how the output shall be distributed. -There exists both national and local labor markets. -Labor markets that involve unions operate under a very formal set of rules that partly governs buyer- seller transactions. -Internal Labor markets exist when a formal set of rules and procedures guides and constrains the employment relationship within a firm. -4 major flows between labor market states: 1. Employed workers become unemployed by quitting voluntarily or being laid off. 2. Unemployed workers obtain employment by being newly hired or being recalled to a job from which they were temporarily laid off. 3. Those in the labor force, whether employed or unemployed, can leave the labor force by retiring or deciding against seeking work for pay. 4. Those who have never worked or looked for a job expand the labor force by entering it, while those who have dropped out re-enter. -Unemployment rate is crude and has imperfections, however it is the most widely cited measure of labor market conditions. -When it is around 5% in the US, the labor market is considered tight, indicating that jobs in general are plentiful and hard for employers to fill and most of those unemployed will find other work quickly. -The number of some kinds of jobs has expanded while others have contracted over the last 50 years. Government employment as a share of the total has fluctuated in a relatively narrow range over this period. -The combination of shifts in the industrial distribution of jobs and changes in production tech within each sector has required that workers acquire new skills and work in new jobs. The Earnings of Labor -From the workers point of view, the price of labor is important in determining income- and hence, purchasing power. -Wage rate: price of labor per working hour -Nominal wage: what workers get paid per hour in current dollars and is most useful in comparing the pay of workers at a given time. -Real wages: nominal wages divided by some measure of prices which suggests how much can be purchased with a workers’ nominal wages. If a worker earns 62 a day and a pair of shoes cost 31, it can be said that they earn the equivalent of 2 pairs of shoes a day. -Consumer Price Index (CPI)- determining what a fixed bundle of consumer goods and services (food, housing, clothing, transport, medical care, etc) costs each year. Pg 32 -A debate exists about whether real-wage calculations based on the CPI are accurate indicators of changes in the purchasing power of an hour of work for the ordinary American. There are two central problems.
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