To start this unit, let us look at the labor market. The labor market determines the equilibrium price of labor - the wage rate, by bringing together the demand for labor by employers and the supply of labor by individuals like ourselves who are in the labor market. The equilibrium wage is determined in the labor market and changes in either the demand or supply of labor will influence the wage rate.
We begin with a homogenous labor market where are workers are considered identical. Then we split skilled labor and less skilled labor into separate markets. This will help us analyze the increasing wage gap between skilled workers (often considered individuals who have obtained a post-high school degree and less skilled workers (usually involves workers with an educational attainment up to and including a high school degree).
In this section we will define what is the labor force and the unemployment rate. The unemployment rate equals the percentage of the labor force that is seeking work. We will look at the various types of unemployment. Not all people are out of work for the same reason. Some have been laid off because their job has been displaced by automation, others due to the end of a season, some choose to become unemployed and others are the consequences of a decrease in demand for the good or service they produce.
One important item to note is that trying to achieve an unemployment rate of 0% is not possible. Some individuals claim the government prohibits a zero percent unemployment rate in order to keep wages low. In reality, there will always be some voluntary unemployment, although there is some truth to the belief that government policy makers often worry when low unemployment rates are accompanied by rising inflation rates. In these circumstances, they may put the economic brakes on and allow the unemployment rate to creep upwards.
Even in today's high tech economy, labor costs still comprise about 2/3 of all production costs incurred by producers.
The section will be wrapped up with a look at several important trends in employment and job growth. This information will better help you to understand why the future employment outlook is changing. A careful look will be taken of the role of technology in job displacement, and more importantly in job creation. In addition, we will consider contributing factors to the increasing wage gap between skilled and less-skilled workers in the United States, including the role of technology and international trade effects.