Labor Economics Job Search: External

Labor Economics

Job Search: External and Internal

The fifteenth chapter discusses the job migration in terms of the employees' search for jobs in the external and internal environments. The external search for job occurs when individuals look to change their employer, whereas the internal job search occurs when the individuals only want to switch their position, but not the employer.

External Job Search

The movement on the external labor force market is generated by two features - the heterogeneity of the employers and the jobs performed and secondly, the imperfect access to information in the market. Considering these then, the job search model sees that the individual will resign form his current position in order to find a more suitable position within another company. Throughout the time of search, he will be unemployed and stimulated by a desired wage rate. The advantage of this period relies in that the individual becomes more informed and gains increased access to potential jobs. In most cases (an estimated 80%) chances are that the offer received from a secondary employer would implement a wage rate higher than that initially desired by the individual.

An important specification that must be hereby made relates to the relationship between job search and inflation rates. In this order of ideas, an increased inflation will generate a false higher wage. The candidates will then be tempted to accept the jobs as they seem to pay more. The tendency to accept jobs in such circumstances is of 95%, as compared to 80% in the previous scenario. The action of job search will therefore be shortened. In time however, the individuals will recognize the false increase due to inflation and will readjust their desired wage rates. Consequently, the length of the job search process would return to normal.

The length of the process will also be influences by the compensation plans. This can most simply be explained by the fact that, due to diversified remunerations and benefits, individuals will spend more time in search of the employer who offers the desirable compensation plan.

Internal Labor Markets

However presented in different manners, the organization remains an extension of the labor force market in that it promotes competition, promotions, compensation and all the other features which characterize the market. The analysis of this particular channel of job mobility is important as studies have revealed increased movements. It is for instance estimated that 50% of the entire labor force is, or has been, engaged in operations in the internal labor market.

Each internal labor market, more simply called an organization, institution or a unit, is characterized by its three-dimensional approach of a job. This is done through the lens of certain skills, common functions and a single focus on work. In this environment, the number of employees, their skills and their wages are the result of movements in the external market. However, they are also subjected to internal regulations and requirements.

A new employee within an organization will play the role of the trainee and will be placed at the port of entry, at the bottom of the job ladder. Through an improvement in performances as well as other criteria selected by the respective organization, the employee will be promoted and will as such be able to climb the job ladder.

An interesting question which could hereby be posed refers to the forces which motivate the existence of the internal labor markets. The answer is rather simple in fact and refers to the desire to reduce operational and human resource expenditure. To better understand, a high turnover rate generates significant costs upon the economic entity, which has to spend with recruiting, selecting, hiring and training new staff members. In order then to avoid high turnover rates and costs with hiring new employees, organizations implement an open politics relative to internal promotions or job search.

Chapter 16: The Distribution of Personal Earnings

Describing the Distribution of Earnings

The allocation of incomes can be explained with the aid of several models, two most relevant ones being the frequency distribution and the Lorenz curve. The first method uses both absolute as well as relative numbers and concludes that in the United States, most workers register reduced wages, whereas some fewer employees register wages way above the medium. The Lorenz curve uses the cumulative earnings and comes to a similar conclusion. The graphical representations of wage inequality can also be observed in mathematical formulas, with the aid of the Gini coefficient. Following the previous example of the wage distribution within the American labor force, the calculation of the Gini coefficient comes to retrieve similar results: the wage allocation in the United States in highly uneven.

In making the assumption, implementing the models and calculating the formulas, the reader has to consider the status of full or part time employee, the fringe benefits, the individual and family wage distributions as well as the statistics portrayals.

Explaining the Distribution of Earnings

The question being posed here refers to the reasons behind the existence of an income inequality. Several explanations have been to this matter, the most relevant ones being encompassed in the human capital theory. It states that at the basis of uneven job and wage distribution sit the diverse capabilities of each individual. Otherwise put, the amount and quality of the received education, the previous expertise or the job training lead to differences in the offered wage.

The human capital theory has historically been considered rather simplistic and along the years, numerous annotations have been added. Some of the most important ones refer to the need to consider other forces when dealing with income inequality. These forces refer to features such as personal abilities, family and social background, discriminatory practices or aversion to risk.

Mobility within the Earnings Distribution

As a general historical observation, it has been stated that the distribution of earnings may vary significantly from one year to the next, but when it comes to a difference between two decades, this is barely existent. A main reasons for this is given by the migration of the staff members, most eloquently described through the musical chair scenario - it sees that the positions of the chairs (jobs) remains unchanged, but the occupants of the chairs (the employees) differ at various points in time.

There are two types of earning mobilities: life-cycle mobility and age-independent mobility. The first theory points out that an employee is likely to register reduced income in his youth, significantly increased at maturity and again reduced near retirement. The "churning" theory is opposed to the life-cycle ideology and sees that employees will register various incomes throughout the same age group.

Rising Earnings Inequality

The first explanation forwarded to offer insight into the deepening income gap was a demographic one based on statistic observations and saw that the middle class in the United States was decreasing. At the opposite pole of this theory stands the idea according to which there is a wide discrimination in terms of high and low paying positions in the service sector. However the specialized literature has yet to agree upon an accepted theory, the academicians have observed a real growth in income inequality. Their findings have also been supported by the conclusions formulated by empirical research.

Other reasons forwarded for the increasing income inequality refer to deindustrialization and the growth of the service sector, the decline of unionism, outsourcing operations, the increasing demand for highly skilled and specialized workers, as well as changes in population demographics.

Chapter 17: Labor Productivity: Wages, Prices and Employment

The Productivity Concept

The concept of productivity is in fact a simple one, revolving around the relationship between organizational input and output. It can be measures through a division of the results retrieved through the manufacturing process and the resource consumption incurred in manufacturing the respective products. It is expressed as a ratio and tells organizations how much output can be generated by a unit of input. The goal is to increase productivity and this materializes in an increase in the quantity of output which can be produced with the same quantity of input.

Other things being equal, an increase in production efforts and labor time often results in an increased productivity. The labor productivity can be measured by dividing the total product (or the real gross domestic product) by the number of worker hours.

Importance of Productivity Increases

Organizational leaders have transformed an increased productivity into a goal due to a multitude of reasons, the two most important ones being that productivity growths trigger increases in wage rates and living standards, and secondly, because increases in productivity manage to control inflation.

In the first instance, the increase of real wages occurs when the labor force demand increases at a rate larger than that of the supply. It also occurs due to increases in labor productivity.

Long-Run Trend of Labor Productivity

Generalized increases in labor productivity are rather difficult to achieve. Over the past century however, an estimated growth of 2-3% is believed to have occurred. Even if 3% may not mean much throughout a century, differences observed in the beginning and end of the century reveal massive changes. The labor productivity rates are expected to maintain their ascendant trend throughout the next period.

The increases in productivity can be explained through the combined actions of three forces:

improved quality of the labor and superior performances of the human resource increased quantities of organizational capitals higher efficiency of the labor process, including such forces as technological developments, socio-cultural changes, the creation of scale economies or the reallocation of labor

Cyclic Changes in Productivity

However it has been established the generalized growth tendency on the long run, the study of short terms presents the reader with evidence of cyclic behaviors in labor productivity. To better understand - the labor productivity decreases during times of economic difficulties and increases in periods of boom or economic recovery. There are various reasons why the cyclic trend is revealed in the short run; the most important three such reasons are the modifications in using labor, modifications in the usage of equipments and finally, changes in the formation of the aggregate output.

In terms of labor utilization it can be said that in times of recession, employees shift away from manufacturing to services (such as maintenance of the goods previously produced) - as a result, labor productivity decreases. In terms of plant and equipments, it has been observed that in times of economic difficulties, manufacturers do not use their gadgets at maximum capacity, once again generating a reduction in labor productivity.

Productivity and Employment

The existence of a relationship between labor productivity and employment patters has been debated for years. A common belief relative to this relationship was that increases in productivity (and labor force efficiency) imply a reduced need for labor force and therefore generate the loss of jobs and increased unemployment rates. In order to make a most informed statement, numerous scholars and practitioners have conducted studies within a multitude of industries. The results were however inconclusive and the final statement was that there is no actually observed relationship between employment and labor productivity.

Chapter 18: Employment and Unemployment

Employment and Unemployment Statistics

The statistical analyses are generally conducted by the Bureau of Census and their results are most often relevant. In order to make sure of the relevance of the statistical findings, one has to make the clear distinction between employed and unemployed individuals. They must then correlate it with the entire population, as well as the entire labor force.

In the U.S., the employment-population rate has been increasing for nearly five decades, whereas the unemployment rate has fluctuated significantly for the same period.