Labor Economics (saylor.org)

In economics, the term “labor” refers to workers. As a factor of production, labor earns wages for the services that it renders. As such, students of labor economics have traditionally set out to understand wage formation, the level of employment, and all elements that go into the making of a wage relationship. Over the years, the social and economic contexts in which labor markets operate have become increasingly complex; nowadays, labor economics is no longer limited to the study of wages. Modern labor economics instead seeks to understand the complex workings of the labor market by studying the dynamics between employers, employees, and their wage-, price-, and profit-making incentives. In other words, modern labor economics explores the outcomes of the labor market under the assumption that workers strive to maximize their wellbeing and firms strive to maximize profits. It also analyzes the behavior of employers and employees and studies their responses to changes in government policies and/or in the demographic composition of the labor force.

In order to study how labor markets work, we must first build a good theory of the labor market with empirical implications that can be tested with real world data. This course is accordingly designed to teach both fact and theory. By looking at facts through data and empirical findings, we can better understand the mechanisms of the labor market. The theory, on the other hand, will help us in understanding how this data is generated.

Prior to taking this course, you should have completed Principles of Microeconomics or, at a minimum, have a basic understanding of the topics covered in microeconomics—namely, the demand and supply model and the concept of elasticity. The purpose of this course is to teach you how workers and firms make decisions in the labor market. The course will also teach you how the government can alter the economic opportunities available to both workers and firms by changing the “rules of the game” through social policies, thus influencing the decisions of these two players. At the end of the course, you should be able to use the tools learned in this course to understand, analyze, and predict some of labor market outcomes and examine the different ways social policy can affect the interaction between workers and firms.

Upon successful completion of this course, students will be able to:

Demonstrate an understanding of basic labor economics theory, including labor market structures and wage determination.

Apply their understanding of theoretical models to analyze trends in data pertaining to topics in labor economics.

Apply their understanding of theoretical models to case studies presented in the course.

Construct, defend, and analyze important labor policy issues.

Comprehend, assess, and criticize existing empirical work in labor economics.