Appunti Managerial Economics - Modulo 2

WITCH

World Induced Technical Change Hybrid is a climate/energy/economic Integrated Assessment

Model:

✓ –

Integrated Multidisciplinary

✓ Assessment - Generate useful information for policy making

✓ Model - Numerical model

It consists of a dynamic global model that integrates in a unified framework the most important

elements of climate change.

APPS

It is an ICES model (Intertemporal Computable Equilibrium System Model), able to produce an

Index, which offers a comprehensive assessment of current well-being and future sustainability based

upon 27 indicators related to the 17 Sustainable Development Goals (SDGs).

A multi-step methodological framework was delevoped to compute the current and the future values

of SDGs indicators and composite indexes.

Issues of Labor Economics

Labor On 2 Levels →

The first level is the Traditional Labor Economics where and how labor markets work. As in all

of economics, this has a purpose. Many of the issues in the debate over social policy concern the labor

market experiences of particular groups. This impacts policy implications, in addition to have effects

on the corporation.

Questions regarding L.E.

➢ Why did the labor force participation of women rise throughout the past century?

➢ What is the impact of immigration on the wages and employment opportunities of native-born

workers?

➢ Do minimum wages increase the unemployment rate of less-skilled workers?

➢ Do wage and tax subsidies encourage firms to increase their employment?

➢ What is the impact of occupational safety and health regulation on employment and earnings?

➢ Are government subsidies of investment in human capital an effective way to improve the

economic well-being of disadvantaged workers?

➢ What is the impact of affirmative action on the earnings of women and minorities and on the

number of women and minorities that firms hire?

➢ What is the economic impact of unions on both their membership and the rest of the economy?

New Labor Economics

A new part of labors economics is personnel economics

~ In the past there was no systematic discipline which to base human resource questions

~ Always regarded as too soft

~ Today we have models that can provide detailed and unambiguous answers

New Labor Economics Questions

➢ Are high skilled people better worked at a particular job?

➢ Are highly skilled people worth the additional salary cost?

➢ How skilled is highly skilled?

Personnel Questions

➢ Which levels of skill should be considered for a particular job?

➢ How should skill be defined? Is formal education the key or should we use some other

criterion?

➢ What are the trade-offs between quantity and quality?

➢ Are two unskilled workers more or less productive that one skilled worker?

➢ Do supply conditions matter? Is worker availability an issue?

➢ How many workers should be hired?

Internal labor market

A firm uses an internal labor market if:

- external hiring is used primarily for entry-level jobs, and

- higher level positions are filled by promotion from within the firm.

Internal labor markets exist because the use of such markets:

- reduces hiring and training costs,

- improves employee morale and motivation, and

- reduces the effect of uncertainty.

Primary vs. Secondary labor markets

❖ primary labor market - high wages and stable employment relationships;

❖ secondary labor market - low wages and unstable employment relationships (black market is

the worst situation, in Italy it is very big)

Labor force and unemployment

❖ labor force = noninstitutionalized individuals aged 16 or above who are either working or

actively seeking work;

❖ unemployed = those who are not working but are “actively seeking work”.

Unemployment rate (=%unemployed / %in the labor force)

Discouraged workers are workers who have given up looking for work. An increase in the number

of discouraged workers causes the unemployment rate to fall.

Labor force participation rate (labor force / population)

The labor force participation rate rises during an expansion and falls during a recession. Fluctuations

in the labor force participation rate over the course of the business cycle dampen cyclical fluctuations

in the unemployment rate.

Trend in unemployment rates

Unemployment rates in the latter half of the 20th century were higher than in the first half.

Trends in labor force participation rates

The labor force participation rate has declined for males (primarily for males in their early 20s and

over 62), education was the issue; the labor force participation rate has increased for females

(particularly for married females).

Sectoral shifts in employment

❖ primary sector (agricultural) employment has declined as a share of the labor force;

❖ secondary sector (industrial) employment has declined slightly as a share of the labor force,

but only in the past few decades;

❖ tertiary sector (service sector) employment has increased as a share of the labor force.

Reasons for the shifts in employment

❖ the primary sector (agriculture) is characterized by rapid growth in labor productivity and a

low income elasticity of demand;

❖ the secondary sector is characterized by rapid growth in labor productivity and a moderately

high income elasticity of demand;

❖ the tertiary sector is characterized by slow growth in labor productivity and a high income

elasticity of demand

Nominal and real wages

❖ Nominal wages are not adjusted for inflation and are said to be expressed in terms of “current

currency.”

❖ Real wages are wages that have been adjusted to take into account the effect of inflation. Real

wages are expressed in terms of dollars from a given base year and are said to be expressed

in “constant currency.”

Price index

Problems with the CPI

- inflationary bias (substitution bias)

- difficulty in adjusting for quality change, it does not consider problems like technology

Wages, earnings, total compensation and income

❖ wage = payment per unit of time

❖ earnings = wage x hours

❖ total compensation = earnings + fringe benefits

❖ fringe benefits = payments-in-kind + deferred compensation

❖ income = total compensation + unearned income (or income = earnings + unearned income)

Demand for labor

The labor demand curve is downward sloping due to a substitution and a scale effect.

Substitution effect

substitution effect - substitution of other resources for a resource that becomes relatively more

expensive (in a sense, it is the opportunity cost).

Scale effect

The scale effect associated with a wage increase involves the following steps:

- higher wages result in higher average and marginal costs of production;

- leading to an increase in the equilibrium price of the product;

- leading to a reduction in the quantity of the product demanded (there is higher cost of

production);

- leading to a reduction in the use of all inputs used to produce the product.

That is why it is not easy to ask an increase in wage.

Slope of labor demand curve

Both the substitution and scale effects result in a reduction in the quantity of labor demanded when

the wage rate rises. A change in the wage changes the quantity of labor demanded, but does not affect

labor demand. Labor demand changes only if the labor demand curve shifts in some manner (as

discussed below).

Shifts in labor demand

Industry demand for labor

An industry's demand for labor consists of the total demand for a particular type of worker in a given

industry, for instance engineer with specific characteristics. (An industry consists of all of the firms

that produce a given type of output.). An industry's labor demand curve is determined by adding

together the labor demand curves for all of the firms in the industry.

Market demand for labor

The market for a given category of labor consists of all of the firms that might hire a given type of

labor, regardless of the industry in which the firm operates. The market demand for labor is

determined by adding together all of the industry demand for labor curves.

Long-run vs. short-run labor demand

It is important to consider the intersection between long and short-run, so L0. When we manage a

firm, we know that the elasticity is different between the long and the short-run. Think about the

adjustment period, we have to decide now what to do and we cannot fire tomorrow our employees. It

is not a good that we can dismiss, workers are not capital. This have to be embedded in a decision of

managers.

Market labor supply

The market labor supply curve is expected to be upward sloping because an increase in the wage in a

particular labor market will:

- cause some workers in this market to work additional hours,

- induce some workers to shift from other labor markets to this relatively more remunerative

alternative employment,

- will cause some individuals who are not currently in the labor force to enter this market.

Shifts in market labor supply curve

Labor supply to individual firms

Labor market equilibrium

Shifts in labor market equilibrium

• An increase in labor demand results in an increase in both the equilibrium wage and

theequilibrium level of employment.

• A reduction in labor demand results in a decrease in both the equilibrium wage and the

equilibrium level of employment.

• An increase in labor supply results in a lower equilibrium wage, but a higher equilibrium level

of employment.

• A reduction in labor supply results in a higher equilibrium wage, but a lower equilibrium level

of employment.

Two types of unions “craft

We can face 2 types of unions, industrial union and trade union (also known as a union”).

Collective bargaining agreement

Overpaid and underpaid workers

There is an issue, namely economists argue that workers are overpaid if their wage is above the

equilibrium. Instead, they are underpaid if their wage is below the equilibrium wage.

Economic rent (is something more)

Workers receive economic rent when they receive a payment that exceeds the opportunity cost of

supplying their labor. The opportunity cost of supplying labor is the value of this time in its next-best

“reservation

alternative use. Another name for this opportunity cost is the wage”, the lowest wage

offer an individual will accept.

International comparisons of unemployment rates

Unemployment rates have, in recent decades, generally been higher in Europe than in the United

States (they are worsening their condition). It is argued that this is because nonmarket forces are more

important in wage setting in Europe. ETHICS

It deals with how to be happy and the bottom question is: what do you want to do in and with your

life? Future simply does not exist, if you want to do something do it now! That is why, we need to

move from what to why. →

– your purpose, motivation… what do you believe?

WHY this is not going to change so