Labour economists study the decisions of everyday life, especially how people earn a liv-
ing.We even offer the analytic tools to help you decide whether to take labour economics,
English,quantum mechanics,or nothing at all (see Chapter 9).In Canada,most people earn
a living at their jobs, that is, from the earnings they receive from selling their labour serv-
ices through the labour market. Not surprisingly, many of the most important issues of
public policy hinge on our understanding of how the labour market works.What causes
unemployment? Why are some people’s earnings so low that they need social assistance?
Why are women often paid less than men? Should governments pay subsidies for post-
The discipline of labour economics provides a framework for critical thinking about
these sorts of questions. At the core of the discipline is the neoclassical supply and
demand model.This model allows the construction of logical, internally consistent argu-
ments concerning economic variables, such as employment and earnings. But models have
to be used carefully, and evaluated for their applicability in the real world. Labour econo-
mists therefore combine theoretical reasoning with empirical evidence. The interplay
between economic theory and evidence is complex.On the one hand,empirical evidence
is used as a way to evaluate the theory and to calibrate the ingredients of theoretical mod-
els (e.g., how much taking an additional year of schooling raises a person’s earnings). But,
on the other hand,economic theory also serves a vital role in “purely”empirical exercises.
Without theory, labour economics would appear as “just one damn fact after another”
(which is not to diminish the value of establishing a “fact” in the first place).
In this book, we provide students with the tools for critical thinking about labour mar-
ket problems.As the subtitle indicates, we aim to develop student facility at both theoreti-
cal and empirical critical thinking.Another important organizing principle is the focus on
public policy. The book is meant to provide a consistent theoretical framework that can be
applied not only to current policy issues but also to new policy issues as they emerge over
time. Policies that are relevant today may not be relevant tomorrow, but a good theoretical
foundation will always be relevant. Just as importantly, what constitutes evidence? We are
constantly bombarded with claims that a particular viewpoint has “the facts” on its side.
How can we recognize plausible empirical arguments?
We also believe that economic institutions matter, especially in labour markets. While
economic theory and sound empirical methodology are portable to studying labour mar-
kets in most countries, we have chosen the balance of topics in this book to reflect
Canadian interests.For example,unions are a more important feature of the Canadian land-
scape than that of the United States. Unfortunately, unemployment is also a more promi-
nent feature of the Canadian labour market. Our book reflects these differences.We also