Labour economics seeks to understand the functioning and dynamics of the markets for wage labour. Labour markets or job markets function through the interaction of employers. Labour economics looks at the suppliers of labour services and the demanders of labour services, attempts to understand the resulting pattern of wages and income. Labour is a measure of the work done by human beings, it is conventionally contrasted with such other factors of production as capital. Some theories focus on human capital. There are two sides to labour economics. Labour economics can be seen as the application of microeconomic or macroeconomic techniques to the labour market. Microeconomic techniques study individual firms in the labour market. Macroeconomic techniques look at the interrelations between the labour market, the goods market, the money market, the foreign trade market, it looks at how these interactions influence macro variables such as employment levels, participation rates, aggregate income and gross domestic product.
The labour force is defined as the number of people of working age, who are either employed or looking for work. The participation rate is the number of people in the labour force divided by the size of the adult civilian noninstitutional population; the non-labour force includes those who are not looking for work, those who are institutionalised such as in prisons or psychiatric wards, stay-at home spouses and those serving in the military. The unemployment level is defined as the labour force minus the number of people employed; the unemployment rate is defined as the level of unemployment divided by the labour force. The employment rate is defined as the number of people employed divided by the adult population. In these statistics, self-employed people are counted as employed. Variables like employment level, unemployment level, labour force, unfilled vacancies are called stock variables because they measure a quantity at a point in time, they can be contrasted with flow variables. Changes in the labour force are due to flow variables such as natural population growth, net immigration, new entrants, retirements from the labour force.
Changes in unemployment depend on inflows made up of non-employed people starting to look for jobs and of employed people who lose their jobs and look for new ones, outflows of people who find new employment and of people who stop looking for employment. When looking at the overall macroeconomy, several types of unemployment have been identified, including: Frictional unemployment – This reflects the fact that it takes time for people to find and settle into new jobs. Technological advancement reduces frictional unemployment. Structural unemployment – This reflects a mismatch between the skills and other attributes of the labour force and those demanded by employers. Rapid industry changes of a technical and/or economic nature will increase levels of structural unemployment; the process of globalization has contributed to structural changes in labour markets. Natural rate of unemployment – This is the summation of frictional and structural unemployment, that excludes cyclical contributions of unemployment.
It is the lowest rate of unemployment that a stable economy can expect to achieve, given that some frictional and structural unemployment is inevitable. Economists do not agree on the level of the natural rate, with estimates ranging from 1% to 5%, or on its meaning – some associate it with "non-accelerating inflation"; the estimated rate varies from country from time to time. Demand deficient unemployment – In Keynesian economics, any level of unemployment beyond the natural rate is due to insufficient goods demand in the overall economy. During a recession, aggregate expenditure is deficient causing the underutilisation of inputs. Aggregate expenditure can be increased, according to Keynes, by increasing consumption spending, increasing investment spending, increasing government spending, or increasing the net of exports minus imports, since AE = C + I + G +. Neoclassical economists view the labour market as similar to other markets in that the forces of supply and demand jointly determine price and quantity.
However, the labour market differs from other markets in several ways. In particular, the labour market may act as a non-clearing market. While according to neoclassical theory most markets attain a point of equilibrium without excess supply or demand, this may not be true of the labour market: it may have a persistent level of unemployment. Contrasting the labour market to other markets reveals persistent compensating differentials among similar workers. Models that assume perfect competition in the labour market, as discussed below, conclude that workers earn their marginal product of labour. Households are suppliers of labour. In microeconomic theory, people are assumed to be rational and seeking to maximize their utility function. In the labour market model, their utility function expresses
Economics is the social science that studies the production and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents. Microeconomics analyzes basic elements in the economy, including individual agents and markets, their interactions, the outcomes of interactions. Individual agents may include, for example, firms and sellers. Macroeconomics analyzes the entire economy and issues affecting it, including unemployment of resources, economic growth, the public policies that address these issues. See glossary of economics. Other broad distinctions within economics include those between positive economics, describing "what is", normative economics, advocating "what ought to be". Economic analysis can be applied throughout society, in business, health care, government. Economic analysis is sometimes applied to such diverse subjects as crime, the family, politics, social institutions, war and the environment; the discipline was renamed in the late 19th century due to Alfred Marshall, from "political economy" to "economics" as a shorter term for "economic science".
At that time, it became more open to rigorous thinking and made increased use of mathematics, which helped support efforts to have it accepted as a science and as a separate discipline outside of political science and other social sciences. There are a variety of modern definitions of economics. Scottish philosopher Adam Smith defined what was called political economy as "an inquiry into the nature and causes of the wealth of nations", in particular as: a branch of the science of a statesman or legislator a plentiful revenue or subsistence for the people... to supply the state or commonwealth with a revenue for the publick services. Jean-Baptiste Say, distinguishing the subject from its public-policy uses, defines it as the science of production and consumption of wealth. On the satirical side, Thomas Carlyle coined "the dismal science" as an epithet for classical economics, in this context linked to the pessimistic analysis of Malthus. John Stuart Mill defines the subject in a social context as: The science which traces the laws of such of the phenomena of society as arise from the combined operations of mankind for the production of wealth, in so far as those phenomena are not modified by the pursuit of any other object.
Alfred Marshall provides a still cited definition in his textbook Principles of Economics that extends analysis beyond wealth and from the societal to the microeconomic level: Economics is a study of man in the ordinary business of life. It enquires how he uses it. Thus, it is on the one side, the study of wealth and on the other and more important side, a part of the study of man. Lionel Robbins developed implications of what has been termed "erhaps the most accepted current definition of the subject": Economics is a science which studies human behaviour as a relationship between ends and scarce means which have alternative uses. Robbins describes the definition as not classificatory in "pick out certain kinds of behaviour" but rather analytical in "focus attention on a particular aspect of behaviour, the form imposed by the influence of scarcity." He affirmed that previous economists have centred their studies on the analysis of wealth: how wealth is created and consumed. But he said that economics can be used to study other things, such as war, that are outside its usual focus.
This is because war has as the goal winning it, generates both cost and benefits. If the war is not winnable or if the expected costs outweigh the benefits, the deciding actors may never go to war but rather explore other alternatives. We cannot define economics as the science that studies wealth, crime and any other field economic analysis can be applied to; some subsequent comments criticized the definition as overly broad in failing to limit its subject matter to analysis of markets. From the 1960s, such comments abated as the economic theory of maximizing behaviour and rational-choice modelling expanded the domain of the subject to areas treated in other fields. There are other criticisms as well, such as in scarcity not accounting for the macroeconomics of high unemployment. Gary Becker, a contributor to the expansion of economics into new areas, describes the approach he favours as "combin assumptions of maximizing behaviour, stable preferences, market equilibrium, used relentlessly and unflinchingly."
One commentary characterizes the remark as making economics an approach rather than a subject matter but with great specificity as to the "choice process and the type of social interaction that analysis involves." The same source reviews a range of definitions included in principles of economics textbooks and concludes that the lack of agreement need not affect the subject-matter that the texts treat. A
Education economics or the economics of education is the study of economic issues relating to education, including the demand for education, the financing and provision of education, the comparative efficiency of various educational programs and policies. From early works on the relationship between schooling and labor market outcomes for individuals, the field of the economics of education has grown to cover all areas with linkages to education. Economics distinguishes in addition to physical capital another form of capital, no less critical as a means of production – human capital. With investments in human capital, such as education, three major economic effects can be expected: increased expenses as the accumulation of human capital requires investments just as physical capital does, increased productivity as people gain characteristics that enable them to produce more output and hence return on investment in the form of higher incomes. Investments in human capital entail an investment cost.
In European countries most education expenditure takes the form of government consumption, although some costs are borne by individuals. These investments can be rather costly. EU governments spent between 3% and 8% of GDP on education in 2005, the average being 5%. However, measuring the spending this way alone underestimates the costs because a more subtle form of costs is overlooked: the opportunity cost of forgone wages as students cannot work while they study, it has been estimated that the total costs, including opportunity costs, of education are as much as double the direct costs. Including opportunity costs investments in education can be estimated to have been around 10% of GDP in the EU countries in 2005. In comparison investments in physical capital were 20% of GDP, thus the two are of similar magnitude. Human capital in the form of education shares many characteristics with physical capital. Both require an investment to create and, once created, both have economic value. Physical capital earns a return because people are willing to pay to use a piece of physical capital in work as it allows them to produce more output.
To measure the productive value of physical capital, we can measure how much of a return it commands in the market. In the case of human capital calculating returns is more complicated – after all, we cannot separate education from the person to see how much it rents for. To get around this problem, the returns to human capital are inferred from differences in wages among people with different levels of education. Hall and Jones have calculated from international data that on average that the returns on education are 13.4% per year for first four years of schooling, 10.1% per year for the next four years and 6.8% for each year beyond eight years. Thus someone with 12 years of schooling can be expected to earn, on average, 1.1344 × 1.1014 × 1.0684 = 3.161 times as much as someone with no schooling at all. Economy-wide, the effect of human capital on incomes has been estimated to be rather significant: 65% of wages paid in developed countries is payments to human capital and only 35% to raw labor.
The higher productivity of well-educated workers is one of the factors that explain higher GDPs and, higher incomes in developed countries. A strong correlation between GDP and education is visible among the countries of the world, as is shown by the upper left figure, it is less clear, how much of a high GDP is explained by education. After all, it is possible that rich countries can afford more education. To distinguish the part of GDP explained with education from other causes, Weil has calculated how much one would expect each country’s GDP to be higher based on the data on average schooling; this was based on the above-mentioned calculations of Jones on the returns on education. GDPs predicted by Weil’s calculations can be plotted against actual GDPs, as is done in the figure on the left, demonstrating that the variation in education explains some, but not all, of the variation in GDP; the matter of externalities should be considered. When speaking of externalities one thinks of the negative effects of economic activities that are not included in market prices, such as pollution.
These are negative externalities. However, there are positive externalities – that is, positive effects of which someone can benefit without having to pay for it. Education bears with it major positive externalities: giving one person more education raises not only his or her output but the output of those around him or her. Educated workers can bring new technologies and information to the consideration of others, they can act as an example. The positive externalities of education include the effects of personal networks and the roles educated workers play in them. Positive externalities from human capital are one explanation for why governments are involved in education. If people were left on their own, they would not take into account the full social benefit of education – in other words the rise in the output and wages of others – so the amount they would choose to obtain would be lower than the social optimum. A 2013 study assesses demand- and supply-side factors that affect educational access and attainment in development countries, it shows that addressing demand-side factors, such as geographic gaps between rural and urban areas, higher levels of population growth and child labour, can have greater impact on increasing levels of education in developing countries than supply-side factors, such as constructing additional school facilities, hiring more teachers etc.
The dominant model of th
Cultural economics is the branch of economics that studies the relation of culture to economic outcomes. Here, ` culture' is defined by shared preferences of respective groups. Programmatic issues include whether and how much culture matters as to economic outcomes and what its relation is to institutions; as a growing field in behavioral economics, the role of culture in economic behavior is being demonstrate to cause significant differentials in decision-making and the management and valuation of assets. Applications include the study of social norms. Social identity, beliefs in redistributive justice, hatred, trust, family ties, long-term orientation, the culture of economics. A general analytical theme is how ideas and behaviors are spread among individuals through the formation of social capital, social networks and processes such as social learning, as in the theory of social evolution and information cascades. Methods include case studies and theoretical and empirical modeling of cultural transmission within and across social groups.
In 2013 Said E. Dawlabani added the value systems approach to the cultural emergence aspect of macroeconomics. Cultural economics develops from how wants and tastes are formed in society; this is due to nurture aspects, or what type of environment one is raised in, as it is the internalization of one’s upbringing that shapes their future wants and tastes. Acquired tastes can be thought of as an example of this, as they demonstrate how preferences can be shaped socially. A key thought area that separates the development of cultural economics from traditional economics is a difference in how individuals arrive at their decisions. While a traditional economist will view decision making as having both implicit and explicit consequences, a cultural economist would argue that an individual will not only arrive at their decision based on these implicit and explicit decisions but based on trajectories; these trajectories consist of regularities, which have been built up throughout the years and guide individuals in their decision-making process.
Economists have started to look at cultural economics with a systems thinking approach. In this approach, the economy and culture are each viewed as a single system where "interaction and feedback effects were acknowledged, where in particular the dynamic were made explicit". In this sense, the interdependencies of culture and the economy can be combined and better understood by following this approach. Said E. Dawlabani's book MEMEnomics: The Next-Generation Economic System combines the ideas of value systems and systems thinking to provide one of the first frameworks that explores the effect of economic policies on culture; the book explores the intersections of multiple disciplines such as cultural development, organizational behavior, memetics all in an attempt to explore the roots of cultural economics. The advancing pace of new technology is transforming how the public shares culture; the cultural economic field has seen great growth with the advent of online social networking which has created productivity improvements in how culture is consumed.
New technologies have lead to cultural convergence where all kinds of culture can be accessed on a single device. Throughout their upbringing, younger persons of the current generation are consuming culture faster than their parents did, through new mediums; the smartphone is a blossoming example of this where books, talk and more can all be accessed on a single device in a matter of seconds. This medium and the culture surrounding it is beginning to have an effect on the economy, whether it be increasing communication while lowering costs, lowering the barriers of entry to the technology economy, or making use of excess capacity; this field has seen growth through the advent of new economic studies that have put on a cultural lens. For example, a recent study on Europeans living with their families into adulthood was conducted by Paola Sapienza, a professor at Northwestern University; the study found that those of Southern European descent tend to live at home with their families longer than those of Northern European descent.
Sapienza added cultural critique to her analysis of the research, revealing that it is Southern European culture to stay at home longer and related this to how those who live at home longer have fewer children and start families thus contributing to Europe's falling birthrates. Sapienza's work is an example of how the growth of cultural economics is beginning to spread across the field. An area that cultural economics has a strong presence in is sustainable development. Sustainable development has been defined as "...development that meets the needs of the present without compromising the ability of future generations to meet their own needs...". Culture plays an important role in this as it can determine how people view preparing for these future generations. Delayed gratification is a cultural economic issue that developed countries are dealing with. Economists argue that to ensure that the future is better than today, certain measures must be taken such as collecting taxes or "going green" to protect the environment.
Policies such as these are hard for today's politicians to promote who want to win the vote of today's voters who are concerned with the present and not the future. People want to see the benefits now, not in the future. Economist David Throsby has proposed the idea of culturally sustainable development which compasses both the cultural industries and culture, he has created a set of criteria in regards to for which policy prescriptions can be compared to in order to ensure growth for future generations. The
Service economy can refer to one or both of two recent economic developments: The increased importance of the service sector in industrialized economies. The current list of Fortune 500 companies contains more service companies and fewer manufacturers than in previous decades; the relative importance of service in a product offering. The service economy in developing countries is concentrated in financial services, retail, human services, information technology and education. Products today have a higher service component than in previous decades. In the management literature this is referred to as the servitization of products or a product-service system; every product today has a service component to it. The old dichotomy between product and service has been replaced by a service-product continuum. Many products are being transformed into services. For example, IBM treats its business as a service business. Although it still manufactures computers, it sees the physical goods as a small part of the "business solutions" industry.
They have found that the price elasticity of demand for "business solutions" is much less than for hardware. There has been a corresponding shift to a subscription pricing model. Rather than receiving a single payment for a piece of manufactured equipment, many manufacturers are now receiving a steady stream of revenue for ongoing contracts. Full cost accounting and most accounting reform and monetary reform measures are thought to be impossible to achieve without a good model of the service economy. Since the 1950s, the global economy has undergone a structural transformation. For this change, the American economist Victor R. Fuchs called it “the service economy” in 1968, he believes that the United States has taken the lead in entering the service economy and society in the Western countries. The declaration heralded the arrival of a service economy that began in the United States on a global scale. With the rapid development of information revolution and technology, the service economy has shown new development trends.
This is seen in green economics and more specific theories within it such as Natural Capitalism, as having these benefits: Much easier integration with accounting for nature's services Much easier integration with state services under globalization, e.g. meat inspection is a service, assumed within a product price, but which can vary quite drastically with jurisdiction, with some serious effects. Association of goods movements in commodity markets with negative commodity public bads so that no commodity can be traded without assuming responsibility for damage done by its extraction, shipping and sale - its comprehensive outcome Easier integration with urban ecology and industrial ecology modelling Making it easier to relate to the Experience Economy of actual quality of life decisions made by human beings based on assumptions about service, integrating economics better with marketing theory about brand value e.g. products are purchased for their assumed reliability in some known process.
This assumes that the user's experience with the brand is far more important than its technical characteristicsProduct stewardship or product take-back are words for a specific requirement or measure in which the service of waste disposal is included in the distribution chain of an industrial product and is paid for at time of purchase. That is, paying for the safe and proper disposal when you pay for the product, relying on those who sold it to you to dispose of it; those who advocate it are concerned with the phases of product lifecycle and the comprehensive outcome of the whole production process. It is considered a pre-requisite to a strict service economy interpretation of "commodity" and "product" relationships, it is applied to paint and other goods that become toxic waste if not disposed of properly. It is most familiar as the container deposit charged for a deposit bottle. One pays a fee to buy the bottle, separately from the fee to buy. If one returns the bottle, the fee is returned, the supplier must return the bottle for re-use or recycling.
If not, one has paid the fee, this can pay for landfill or litter control measures that dispose of diapers or a broken bottle. Since the same fee can be collected by anyone finding and returning the bottle, it is common for people to collect these and return them as a means of gaining a small income; this is quite common for instance among homeless people in U. S. cities. Legal requirements vary: the bottle itself may be considered the property of the purchaser of the contents, or, the purchaser may have some obligation to return the bottle to some depot so it can be recycled or re-used. In some countries, such as Germany, law requires attention to the comprehensive outcome of the whole extraction, distribution and waste of a product, holds those profiting from these responsible for any outcome along the way; this is the trend in the UK and EU generally. In the United States, there have been many class action suits that are product stewardship liability - holding companies responsible for things the product does which it was never advertised to do.
Rather than let liability for these problems be taken up by the public sector or be haphazardly assigned one issue at a time to companies via lawsuits, many accounting reform efforts focus on achieving full cost accounting. This is the financial reflection of the comprehensive outcome - noting the gains and losses to all parties involved, not just those investing or purchasing; such moves have made moral purchasing
Natural resource economics
Natural resource economics deals with the supply and allocation of the Earth's natural resources. One main objective of natural resource economics is to better understand the role of natural resources in the economy in order to develop more sustainable methods of managing those resources to ensure their availability to future generations. Resource economists study interactions between economic and natural systems, with the goal of developing a sustainable and efficient economy. Natural resource economics is a transdisciplinary field of academic research within economics that aims to address the connections and interdependence between human economies and natural ecosystems, its focus is how to operate an economy within the ecological constraints of earth's natural resources. Resource economics brings together and connects different disciplines within the natural and social sciences connected to broad areas of earth science, human economics, natural ecosystems. Economic models must be adapted to accommodate the special features of natural resource inputs.
The traditional curriculum of natural resource economics emphasized fisheries models, forestry models, minerals extraction models. In recent years, other resources, notably air, the global climate, "environmental resources" in general have become important to policy-making. Academic and policy interest has now moved beyond the optimal commercial exploitation of the standard trio of resources to encompass management for other objectives. For example, natural resources more broadly defined have recreational, as well as commercial values, they may contribute to overall social welfare levels, by their mere existence. The economics and policy area focuses on the human aspects of environmental problems. Traditional areas of environmental and natural resource economics include welfare theory, land/location use, pollution control, resource extraction, non-market valuation, resource exhaustibility, environmental management, environmental policy. Research topics could include the environmental impacts of agriculture and urbanization, land use in poor and industrialized countries, international trade and the environment, climate change, methodological advances in non-market valuation, to name just a few.
Hotelling's rule is a 1938 economic model of non-renewable resource management by Harold Hotelling. It shows that efficient exploitation of a nonrenewable and nonaugmentable resource would, under otherwise stable economic conditions, lead to a depletion of the resource; the rule states that this would lead to a net price or "Hotelling rent" for it that rose annually at a rate equal to the rate of interest, reflecting the increasing scarcity of the resource. Nonaugmentable resources of inorganic materials are uncommon. Vogely has stated that the development of a mineral resource occurs in five stages: The current operating margin governed by the proportion of the reserve depleted; the intensive development margin governed by the trade-off between the rising necessary investment and quicker realization of revenue. The extensive development margin in which extraction is begun of known but uneconomic deposits; the exploration margin in which the search for new deposits is conducted and the cost per unit extracted is uncertain with the cost of failure having to be balanced against finding usable resources that have marginal costs of extraction no higher than in the first three stages above.
The technology margin which interacts with the first four stages. The Gray-Hotelling theory is a special case, since it covers only Stages 1–3 and not the far more important Stages 4 and 5. Simon has stated that the supply of natural resources is infinite These conflicting views will be reconciled by considering resource-related topics in depth in the next section, or at least minimized. Furthermore, Hartwick's rule provides insight to the sustainability of welfare in an economy that uses non-renewable resources; the perpetual resource concept is a complex one because the concept of resource is complex and changes with the advent of new technology, new needs, to a lesser degree with new economics. On the one hand, a material can enter a time of shortage and become a strategic and critical material, but on the other hand a material can go out of use, its resource can proceed to being perpetual if it was not before, the resource can become a paleoresource when the material goes completely out of use.
Some of the complexities influencing resources of a material include the extent of recyclability, the availability of suitable substitutes for the material in its end-use products, plus some other less important factors. The Federal Government became compellingly interested in resource issues on December 7, 1941, shortly after which Japan cut the U. S. off from tin and rubber and made some other materials difficult to obtain, such as tungsten. This was the worst case for resource availability, becoming a critical material. After the war a government stockpile of strategic and critical materials was set up, having around 100 different materials which were purchased for cash or obtained by trading off U. S. agricultural commodities for them. In the longer term, scarcity of tin led to comple