LABOR

- Refers to the exertion of human effort to acquire an income. Human effort includes
physical and mental exertion.

Characteristics of Labor
1. Labor is perishable. This characteristic makes labor incapable of being stored. Labor that is
wasted is lost forever.
2. Labor and the individual are inseparable. A man working for wages cannot separate his
physical self from his labor if he wants to enjoy the comforts of another room.
3. Labor supply does not change quickly. The supply of labor increases steadily as population
grows. When there is a great demand for labor in particular year, labor cannot be made to
increase abruptly.
4. Most employable persons do not like to move. Even if the demand for labor is higher in
some places, many people still prefer to remain unemployed.
Reasons:
 They want to stay close with their families.
 They are not aware of the demand for their services elsewhere.
 They lack the required skill.
 They cannot afford the cost of moving from one place to another.
Kinds of Labor
 Manual labor
This type of labor mostly involves the exertion of physical effort specifically the use of
brawn and muscles.
 Clerical labor
Is considered as next higher in order than manual labor. Most parts of the clerical work
are done with physical effort; exertion is not as great as that in manual labor.
 Professional Labor
The professions include the following; physicians, lawyer, engineers, chemists, teachers,
nurses and others. Most of the professions require sufficient training and experience.
 The labor of management
Managers of all kinds and types perform functions which may be referred to as labor of
management. Included under this class are front line managers like supervisors and
foremen, middle managers like branch and area manager.
 Labor of Entrepreneur
This is one who organizes the business and sees to it that the business becomes stable.
 The Labor of Inventors
A very important ingredient of economic development is output of the inventors.
 SUPPLY OF LABOR
It is important to know the circumstances that affect their decision to make labor available in the
market.
Kinds of supply labor
1. Market Activity
2. Nonmarket Activity
Effect of the wages Rate
 The substitution effects
Households will naturally provide some time for nonmarket activities.
 Income effect
When the households wage rate is higher, more income will be available to the households
for spending. When the households decide to spend its money on leisure or other nonmarket
activity, it reduces the time available for pursuing a market activity.

 Backward-Bending labor Supply Curve

When the households begin to have sufficient income, labor supply tends to decrease. Stated
simply, wage earners reduce the time they spend for work when they receive higher wages.
THE DEMAND FOR LABOR
 Labor- is factor of production that is required by business firms.
 Business firms- are sources of demand for labor.
 Quantity of labor demanded— is the total number of man hours (or man day) hired
by all firms.
 The Real Wage Rate Real wage- refers to the purchasing power of a given nominal (or
money) wage.
 Nominal wage rate- is the amount in pesos paid to a worker for a unit of work.
Problems of Labor
A. Unemployment
= Occurs when a person who is of working age, is willing and able to work but cannot find work.
It is an economic problem with undesirable social consequences.
 Output and Income Loss
-When a willing and able worker do not find employment, they are deprived of income
and economy does not benefit from the output they could have produced.
 Depreciation of Human Capital - The capability to work is referred to as person's
human capital.
  Increases in Crime - Unemployed persons who have families to feed or just plainly have
nothing else to do sometimes turn to crime as a way of having money or something to do.
 Human dignity - When persons suffer of loss of employment for long periods, most of
them loss their self-esteem as well.
 Underemployment –occurs when a person who works either part time or full-time but,
in both cases, receive a very little pay.
CAUSE OF UNEMPLOYMENT
 Rapid Growth of population
 Slow growth of the economy
 Technology used Lack of skills
Types of Unemployment
 Seasonal unemployment - there are some jobs that are seasonal in nature. Frictional
unemployment Those days that the person is not yet working.
 Structural unemployment - happens when there are available and willing workers but
their skills and training are not those required by the business firms.
 Cyclical unemployment - when the demand for workers is lesser than the supply.
B. Inadequate Wages Causes:
- Inflation Lack of skills Too many dependents
C. Industrial and Labor- Management Conflict Strikes and lockouts are actions that bring
misery to both the employer and the workers.
D. Economic Insecurities - workers worry about having a permanent source of income.
INVESTMENTS IN HUMAN CAPITAL
2 Ways:
1. Education—is provided to the individual usually before employment.
2. Training—is done when the person is already working.
Theories of Employment
1. Classical Theory
 Employment states that employment increases at lower wages. Such theory
further claims that widespread unemployment could be caused only by stubborn
refusal of workers to accept low enough wages.
2. Keynesian Theory
 States that the employment is determined by aggregate or total demand for goods
and services.