Chapter 15: Job Search: External and Internal
In this chapter, the author focuses on factors that contribute towards internal and external demand for employees to search for jobs. There are two main characteristics of the labor market supply to the need for people to search for the first job offer and for firms to search for employees to fill job vacancies. First, as indicated in the earlier exploration of the wage structure in chapter eight, employees and jobs are exceptionally varied. In the same way, the level of confidence, incentive, abilities, and places of residence vary considerably although employees may have the same levels of education, training, and experience. Similarly, there is little evidence that jobs are identical. As a result, employers pay differing salaries, provide multiple chances for growth, and provide various working conditions, even for similar workers.
The second factor that contribute to employees seeking for better working conditions concern business information about such diversities in individuals and jobs is flawed and takes time to get. Therefore, job seekers, most of whom do not occur elsewhere, and future employers find it is in their own interests to search for information about each other as a way to improve the terms of the transaction. Unemployed people, and who actively seek for work or “job shopping” are officially unemployed. Because there are continuous flows to, from the labor force, and between jobs, the stock of unemployed people is simultaneously diminishing and replenishing. For employers and employees, both expected gains and costs are associated with acquiring enterprise details. This makes it imperative to think in terms of a job search model. An assumption here is that the job searcher is unemployed and seeking work. In addition, it is essential to assume that the person identifies that the heterogeneous kind of jobs and employers, together with imperfect market information, generates a large divergence of predicted wage offers for his or her profession.
The author of this book asserts that job search is a natural and often useful component in a vibrant economy associated with different employees, and jobs as well as through faulty information. A close reading of the book reveals that adequate job seekers constitute an agreement wage at a level where the expected marginal costs and benefits of continued search are similar. They then compare this income to real wage offers. In this event, they expect inflation with a number of effects on the optimal duration of job search. However, fully anticipated inflation has no effect on the optimal range of job search because job seekers will enhance their consent wages upward at the same rate that nominal fee offers surge. On the contrary, specific cases reveal that job seekers perceive inflation mistakenly. When this happens, caused rises in nominal wage offers as real wage increases, they will reduce their job search, and unemployment will briefly decline.
On the other hand, unemployment benefits increase the optimal duration of job search through reduction of the global opportunity cost of continuing to seek still higher salary offers. Because of this, a number of companies and firms integrate local labor markets in which wages and the allocation of labor are established through administrative rules and procedures as opposed to strictly through the supply chain and demand. The authors goes ahead to assess local labor markets, which involve hierarchies of jobs called career ladders. This focuses on a particular job skill, function, or technology. Having entered the career ladder through a port of entry, local labor market workers are largely shielded from the competitive pressure of external labor markets. This is because internal labor markets remain based on the advantages generated for both employers and workers. In the case of employers, internal labor markets reduce employee turnover. This leads to an increase in the return on specific training, and reduction of recruitment as well as training costs.
The section sums up by looking at employee perspectives in internal labor markets. According to the employees, internal labor markets support job security, opportunities for training and assistance, and protection from arbitrary managerial decisions. By providing labor force stability, internal labor markets attract unions; conversely, unions develop and accelerate the development of internal labor markets. A close look at the book indicates that it is unclear whether internal labor markets decline or enhance productive efficiency.
Chapter 16: The Distribution of Personal Earnings
This section sets off by looking at the discussions in the previous chapters. In the previous chapters, the author points out that the matter was majorly on microeconomic factors of labor markets. Specifically, in some point the study was on the labor market decisions of individuals, families, and firms. The authors then introduce the fact that the next three chapters will look at the macroeconomics of labor markets. At this level, it is necessary to remember that macroeconomics deals with general aggregates or collections of individual economic units treated as if they were one. As a result, the topics in these three chapters contain the empirical distribution of earnings, aggregate labor productivity, and employment and unemployment. This chapter on the distribution of individual earning describes the difference between micro-distribution and macro-distribution. The authors’ attention turns away from an analysis of fixed wages and toward an examination of the issue of individual earnings. This distribution is the state pattern of the shares of different wage earnings.
In this chapter, the authors propose a number of questions that must require terse answer. The concerns are on the inequality of the distribution of wages and salaries, the common factors that explain the observed trend of income distribution in the job market. In addition, the chapter focuses on the mobility within the prevalence and dispersal variation over the past few decades in the job market. In response to some of the issues that came up before, the chapter discusses possible ways of describing the income distribution and measuring the amount of imminent inequality. The next move was to look at theories that help explain the distribution pattern of U.S. earnings. After this, the phase shifts its focus to different wage flexibility, or movements within the overall earnings distribution. The section sums up the discussion by considering the trend toward greater inequality in the earnings distribution over the past 30 years.
The chapter reveals that the level of inequality in personal earnings can be indicated by a histogram, otherwise called an certain frequency distribution, a relative frequency distribution, or a Lorenz curve. A frequency distribution shows either the positive or the corresponding number of employed individuals whose annual earnings fall within different ranges of annual earnings. The Lorenz curve portrays the cumulative percentage of all wage and salary earners and their corresponding cumulative percentage of gross earnings as shown in the two figures below.
In this chapter, specific considerations were given on the US earnings. The frequency distribution for U.S. earnings evidences considerable bunching around a separate technique that is to the left of the median, mean, and displays a long rightward skewed tail, indicating wide disparities in personal earnings. The Gini coefficient measures the amount of earnings inequality on a scale of zero to one. This implies that there is either absolute balance or complete variation. It can be found graphically by comparing the space between the diagonal line and the Lorenz curve to the entire area below the diagonal. It should however be noted that the frequency distributions, Lorenz curves, and Gini coefficients of actual earnings must be interpreted cautiously for a number of reasons:
- Differ depending on whether part-time workers are included or excluded,
- Fail to include fringe benefits
- Do not provide information about family earnings,
- Display more inequality than when based on income after transfers.
In this chapter, the human capital theory is explored once again. For the proponents of the human capital theory, about one-half to two-thirds of earnings inequality is explained by the interactive differences in people’s formal education and on-the-job training. According to some economists, ability:
- Influence earnings directly through enhancement of productivity
- May take several forms that interact multiplicatively to produce the observed skewed distribution of earnings
- May indirectly have an impact on earnings by determining the revenue from, and hence the optimal amount of, investment in human capital.
Other factors that can explain pay inequality as well as the positively skewed end of the income supply curve include family history, discrimination, range of risk taking, and extent of luck. The chapter as well points out that there is considerable activity by individuals within the overall distribution of earnings. This animation is related to the life cycle, reflecting the generally positive correlation between age and earnings. It can as well be surprising when people with more education, training, ability, or luck progress from lower to higher levels of age-adjusted earnings. For instance, the distribution of earnings in the United States has become more unequal over the past 30 years. The authors cite possible causes as:
- Deindustrialization
- Import competition and the reduction of unionism
- Increased demand for skilled workers
- Demographic changes
It is necessary to note that none of these factors thoroughly explains the increase in revenue and income discrimination. Other factors essential in this case are market- side, supply-side, and institutional factors.
Chapter 17: Labor Productivity: Wages, Prices, and Employment
In this chapter, the authors acknowledge the simplest way of defining what output is. From the book, it is clear that productivity is the relationship between real output, the amount of goods and services produced, and the number of data utilized to accomplish the output. In other words, product is the amount of resources effectively expressed in terms of a ratio: productivity output to input. This tells us the number of units of output that can be obtained from a unit of input. Authors have gone ahead to look at real Bureau of Labor Statistics (BLS) index of labor productivity, and established that it is the ratio of real GDP originating in the private sector to the number of worker-hours employed in the private sector. The BLS index overstates productivity growth because it excludes the public sector.
On the other hand, BSL devalues productivity growth. This is based on the quality of ignoring quality improvements in output. The BLS index measures, but does not reveal the causes of, productivity growth. However, there are a number of advantages of the BSL as indicated in chapter:
- It is conceptually simple
- It automatically takes changes in the length of the workweek into account
- It is directly proportional to hourly wage rates.
Authors of this book clearly outline the reasons why economists have an interest in labor productivity typically. This is primarily because changes in productivity correlate closely with changes in real wage rates. Keeping all other factors constant, productivity growth offsets boosts in superficial salaries. As a result, this restrains improvements in unit labor costs and commodity prices. The next section of the chapter focuses on key aspects that influence productivity boost. These include:
- Improvements in the quality of labor
- Increases in the capital–labor ratio
- Increased efficiency in the use of labor and capital inputs
The most significant factor outlined in this event is increased productivity. The book points out in this chapter that labor productivity falls below the long-term rate of growth in decline and rises above that rate during recovery. There are factors that cause this relationship, including cyclic changes in the use of labor, and assets as well as changes in the relative importance of the manufacturing sector. From the research done by the authors of this book, there is no clearly recognizable correlation between productivity growth and business transformations in various industries. According to the argument provided, expenditure and take elasticities of product demand, and market changes from shifts in factors like consumer tastes or public policy, make it unfeasible to foresee that a production augmentation is associated with escalating or declining employment in any given industry.
Chapter 18: Employment and Unemployment
This chapter commences by stating the consequence of unemployment. According to the writers of this book, an individual is legitimately unemployed if she or he is 16 years and above, is not institutionalized, and is seeking work. This person may also be waiting to be called back to a job after being laid off, or waiting to report to a new role within 30 days. The following section outlines the purpose of employment and unemployment statistics. Notably, the statistics extensively help to determine the macro-economic health of the economy.
On the other hand, these statistics help economists to compare application and unemployment rates between periods and number cyclic and temporal trends. It would be noted that the time interval between the survey and reporting of the information is summarized, and the information is highly accessible through government publications. From the model of data used in this chapter, it is true that the data is reported in disaggregated and inclusive forms like unemployment rates are provided by race, age, gender, marital status, occupation, reasons for unemployment, and duration of unemployment. This is crucial in establishing the prevalence of the burden of unemployment. Lastly, the material offers vital signals about the direction of the overall economy during a business cycle.
The chapter moves on to consider a number of limitations of the conventional unemployment statistics as measures of economic distress and indicators to public policy. To assess this, authors propose the stock-flow model. This sorts out causes of shifts in the unemployment rate and avails information on the duration of employment spells for individuals. Another point is that the chapter attempts to address frictional unemployment as a common and generally worthwhile happening in a dynamic economy. This is associated with distinct employees and jobs, imperfect information, and continuous movements of people among the various categories of labor force status. This can take two fundamental forms: search unemployment, connected to the time needed to get a job; and wait unemployment. In wait unemployment, the workers expect to either be recalled to previous jobs, or stay in occupation queues resulting from above-market-clearing wages.
The ultimate concentration of this chapter is on structural unemployment. This results from a mismatch between the skills needed for available jobs and the skills possessed by those seeking employment. Central to this is that those structurally unemployed are displaced workers who lose their jobs because of undeviating plant closings or business cutbacks. A graph plotted to establish the relationship between rates of wages and unemployment levels indicate that wage rates tend to be stubborn downward for a variety of reasons. This has a number of factors including the presence of unions, a tendency toward layoffs by firms, implicit contracts, and insider–outsider relationships. Based on this, spontaneous demand-deficient unemployment emanates when aggregate demand declines. Financial policy is a leading mechanism used to control demand-deficient unemployment, but it has many disadvantages like time lags, the need to coordinate economic and monetary policies to avoid the crowding-out effect as well as tendencies to make inflation.
