Labor Economics as a Social Science - Essay Example

Introduction Feli seemed to be at work when the first formalization of economic thought happened during the Industrial Revolution. In 1776, Adam Smith published his greatest work, “Wealth of Nations” which first proposed that a wealth of a nation is derived from its capacity to organize its factors of production such as land, labor, and capital - far from the accepted idea of the time that only agriculture was productive or a nation’s wealth was the amount of treasure that a sovereign might store in its coffers. More importantly, Smith advanced the idea that the wealth of a nation is due to the contribution of those who do the work, which is still applicable today as it was over two centuries ago. To wit, “The abundance or scantiness of its (society) annual supply must depend, during the continuance of that state, upon the proportion between those who are annually employed in useful labor and those who are not so employed (Smith).” In the same year, several important economic developments were happening. James Watt had perfected the modern steam engine which became the foremost energy source and ushered the era of Industrial Revolution. The United States had declared its independence from England and thereafter became the epitome of industrialization. Eight hundred thirty seven years later, many postindustrial societies are transitioning to internationalized information societies that have brought about myriad changes and challenges which are the subjects and objects of the study of labor economics. 2. Discussion Labor economics is a social science that analyzes, makes inferences, and theorizes about organizations, institutions, and behavior of the markets for wage labor in industrializing, industrialized, or internationalized information economies. It seeks to understand the characteristics of suppliers of labor services, the demands of labor services, and the resulting pattern of wages, employment, and income (Wikipedia contributors). However, labor economics does not include it its study the psychology or sociology of individual employment decisions, such as the emotional ill effects of unemployment or the social gain of wages and salaries or chosen type of work. Current market analyses usually do not take into consideration unpaid labor such as stay-at-home spouses who are raising children or caring for their elders although some recent studies have used the tools of labor economics to know the impact of nonworking spouses, children, and the elderly on household decision-making or on social topics such as marriage, fertility, discrimination, and crime in relation to the labor market. Because labor and the study of labor is of paramount importance and naturally linked to the wealth of a nation’s economy, it is essential that governments thoroughly analyze and investigate its many facets. Labor is the measure of human activity to produce goods or services defined in contrast with other factors of production like land and capital. Labor wages are remuneration for work completed per unit of time. In calculating labor by wages, hours, or efficiency, a business company can use these data in figuring the optimal work force and most favorable wages to maximize productivity and profitability. A government can also use this type of data to determine or curb unemployment and assess the impact of labor on a nation’s economy. A country’s labor force is the number of individuals age 16 and over (working age by law), who are employed, self-employed or actively seeking employment. The non-labor force are those individuals who are not seeking employment such as stay-at-home spouses, those who are pursuing education such as children, retirees, those who are institutionalized such as in prisons or psychiatric facilities, those in the military, and those doing civic service. The unemployment rate is the level of unemployment divided by the labor force. The employment rate is the number of people presently employed divided by the working age population. The labor market is quite similar to commodity markets in that the forces of supply and demand jointly determine the price (the wage rate) and quantity (the labor force). However, the labor market is unique in a number of ways. First, in commodity markets, if the price of a good is high, producers will increase production until the demand is satisfied. In labor markets, total supply cannot be fully maximized because people can only work for limited hours in a day and the labor pool cannot be easily increased or decreased as compared to how fast goods are manufactured or eliminated. Second, a market for goods and services have a point of equilibrium where quantity supplied is equal to quantity demanded while the labor market is expected to have a persistent level of unemployment. Lastly, commodity demand is the consumer’s desire, willingness, and ability to pay for a certain price for a specific quantity of a good or service. Labor demand, however, is a derived demand because consumers (employers) do not yearn for labor for its own sake but because it helps in producing output or increasing production, which add to an employer’s revenue and profit (Wikipedia contributors). 3. Summary Since Adam Smith published his magnificent treatise in 1776, world economies have evolved in innumerable ways, and with it are the changing fortunes of their governments and citizenries. Modern institutions that have facilitated international trade and finance - the General Agreement on Trade and Tariffs (GATT), the International Monetary Fund, the International Bank for Reconstruction and Development (The World Bank) - have all been instrumental in ushering the internationalization of major economies (Marshall and Briggs Jr.40). Given the volatile conditions of an economy in transition, an overwhelming need to understand the emerging problems in labor economics is now more than ever of great importance. New approaches in applying macroeconomic and microeconomic theories to public policies have sought to lessen the adverse consequences of the adjustment processes that are happening in labor markets. Because a huge percentage of the national economy goes into labor, prominent concerns such as gender and race discrimination, legal and illegal immigration, free trade, minimum wages, maximum hours, retirement income, and even the effects of the stay-at-home spouses are now being recognized in its impact to labor market performance. Although each concern is too complex to discuss in this paper, these topics should be continually addressed in public discussions as they affect the welfare of every individual, and as a whole, the wealth of a nation. 4. References Marshall, Ray, and Vernon M. Briggs Jr. Labor Economics: Theory, Institutions, and Public Policy. 6th ed. Irwin, 1989. Print. Smith, Adam. "An Inquiry into the Nature and Causes of the Wealth of Nations." Pennsylvania State University, n.d. Web. 14 Nov 2013. . Wikipedia contributors. "Economics." Wikipedia, The Free Encyclopedia. 11 Nov 2013. . Wikipedia contributors. "Labour Economics." Wikipedia, The Free Encyclopedia. 03 Nov 2013. . Read More