Labor and the factor market
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Labor and the Factor Market. Factor Market. The factor market includes Land, Labor, and Capital. Land: The space needed to do work, as well as the natural resources of the Earth. Labor: This is the work produced by people, as opposed to the work produced by robots or other means.

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Labor and the Factor Market

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Labor and the factor market

Labor and the Factor Market


Factor market

Factor Market

  • The factor market includes Land, Labor, and Capital.

    • Land: The space needed to do work, as well as the natural resources of the Earth.

    • Labor: This is the work produced by people, as opposed to the work produced by robots or other means.

    • Capital: Money resources, as well as machines, buildings, and other assets (cars, computers, etc.)


Capital and labor

Capital and Labor

  • When you hear the phrase “Capital and Labor” or “Capital vs. Labor” what does this mean to you?

    • Labor is one of the three main factors of production, along with capital, and resources (including land).

    • Discussions of labor take many forms, from employment numbers to wages, education levels and union membership.


Labor employment

Labor: Employment

  • Employment is the measure of how many people are participating as a legal worker in the United States. This means that people who are employed work for a wage(at least 1 hour a week), or are employed by family (as on a farm), and are at least 16 years old, while obeying the laws of employment for their area.

  • This is not as straightforward as it may sound. Many people work two or more jobs, and that gets counted as separate employed people. Part time workers are counted the same as full time employees in terms of total number employed. Even more complicated are the statistics for the unemployed, and those who are not participating in the workforce.


Labor unemployment

Labor: Unemployment

  • Unemployed workers are those who are collecting unemployment benefits, and are still looking for work.

  • So for a person to be counted as unemployed, they need to be actively getting benefits from an unemployment office.

  • Many people do not, and people whose benefits expire (usually about 6 months) are not counted on the unemployment rolls.

  • This means there can be a great many people looking for work who are not counted as being unemployed. Instead they are called discouraged workers, or simply not participating in the workforce.

  • Because of this, unemployment statistics do not accurately reflect the number of people who are not gainfully employed who simply have not found a job yet.


Labor unemployment statistics

Labor: Unemployment Statistics

  • Unemployment statistics are an important measure of how well the economy is doing.

  • If these numbers are not reflective of the actual situation, this can then affect how government responds to periods or prolonged unemployment.

  • Employment in the United States goes through many different phases. Seasonal employment can vary considerably, especially around the holidays (Thanksgiving and Christmas).

  • Layoffs by big companies can number in the tens of thousands, and can devastate communities dependant on a particular employer (such as GM).


Labor wages and benefits

Labor: Wages and Benefits

  • The concepts of supply and demand work just as well for labor as they do for other products in a society.

  • Wages are heavily dependant on the type of work, and the education and skill levels of the worker.

  • Benefits vary from company to company, and might not be available for some types of jobs.


Wages and benefits in the labor market

Wages and Benefits in the Labor Market

  • Typically when labor is abundant, wages and benefits are decreased. These kinds of situations are called surpluses of labor.

  • When the labor market tightens, companies have to compete to get labor, so wages and benefits increase in order to attract workers.

  • Since businesses tend to like labor surpluses (because they lower wages), a labor surplus is generally thought of as good within business circles.

  • Globalization has this effect on the labor supply, and this is used to push down labor costs.

Percentage of Wages Paid During Maternity Leave around the World


Labor benefits

Labor: Benefits

  • Benefits are a tricky issue, since the cost of some benefits, especially medical insurance, has gone up so radically, it becomes very difficult for businesses to continue to offer these benefits.

  • As costs go up, it is becoming common for employers to reduce benefits to workers, in order to keep total costs down and remain competitive on the market.


Minimum wages

Minimum Wages

  • Minimum wages do have an effect of how employers decide on their workforce levels.

  • When a company is faced with difficult choices, usually it is difficult to see the larger benefits of having these wages increased throughout an area.

  • This is because when people have more to spend, the demand curve shift out, increasing revenues.

  • This can be difficult for some businesses to anticipate, and therefore most businesses are against minimum wages.


Labor and the factor market

  • Some of the most contentious debates throughout the late 19th and through the 20th century have been the roles of capital and labor in the larger economic world.

  • Karl Marx, the idealist who came up with communism, believed that labor was the source of all wealth, and therefore labor should be in charge of the distribution of wealth.

  • On the other hand, capital (money) is the symbolic trade unit of goods and labor, and without it, it becomes very difficult to start and keep businesses going.


Labor and the factor market

  • The debate is what respective roles capital and labor should have in society with respect to the economic situation.

  • Who should be rewarded, those who work (labor) or those who invest (capital).

  • For most of the western world, the answer has been capital.

  • While workers do receive some benefits, typically the investors gain most of the benefits of capitalism.


Labor and the factor market

  • As a result, usually “capital” dictates to “labor” the terms of employment, wages, and benefits.

  • This balance (or imbalance) of power has led to many confrontations, some of them deadly.

  • To counterbalance the power of capital in the society, labor uses collective action, or unions, to bargain for better wages, working conditions, or benefits.


Labor and the factor market

  • Because of the growing tilt in society against labor unions, collective bargaining is becoming more difficult, especially with respect to globalization.

  • With a large labor supply, it is difficult for workers to collectively bargain for better pay, when workers from other countries will do the same work (or more) for far lower wages.


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