Labour economics, or labor economics, seeks to understand the functioning and dynamics of the markets for wage labour. Labour is a commodity that is supplied by labourers, usually in exchange for a wage paid by demanding firms. Because these labourers exist as parts of a social, institutional, or political system, labour economics must also account for social, cultural and political variables.
A minimum wage is the lowest remuneration that employers can legally pay their employees—the price floor below which employees may not sell their labor. Most countries had introduced minimum wage legislation by the end of the 20th century. Because minimum wages increase the cost of labor, companies often try to avoid minimum wage laws by using gig workers, by moving labor to locations with lower or nonexistent minimum wages, or by automating job functions. Minimum wage policies can vary significantly between countries or even within a country, with different regions, sectors, or age groups having their own minimum wage rates. These variations are often influenced by factors such as the cost of living, regional economic conditions, and industry-specific factors.
Overtime is the amount of time someone works beyond normal working hours. The term is also used for the pay received for this time. Normal hours may be determined in several ways:
A wage is payment made by an employer to an employee for work done in a specific period of time. Some examples of wage payments include compensatory payments such as minimum wage, prevailing wage, and yearly bonuses, and remunerative payments such as prizes and tip payouts. Wages are part of the expenses that are involved in running a business. It is an obligation to the employee regardless of the profitability of the company.
A living wage is defined as the minimum income necessary for a worker to meet their basic needs. This is not the same as a subsistence wage, which refers to a biological minimum, or a solidarity wage, which refers to a minimum wage tracking labor productivity. Needs are defined to include food, housing, and other essential needs such as clothing. The goal of a living wage is to allow a worker to afford a basic but decent standard of living through employment without government subsidies. Due to the flexible nature of the term "needs", there is not one universally accepted measure of what a living wage is and as such it varies by location and household type. A related concept is that of a family wage – one sufficient to not only support oneself, but also to raise a family.
The term efficiency wages was introduced by Alfred Marshall to denote the wage per efficiency unit of labor. Marshallian efficiency wages are those calculated with efficiency or ability exerted being the unit of measure rather than time. That is, the more efficient worker will be paid more than a less efficient worker for the same amount of hours worked.
Labour power is the capacity to do work, a key concept used by Karl Marx in his critique of capitalist political economy. Marx distinguished between the capacity to do work, i.e. labour power, and the physical act of working, i.e. labour. Labour power exists in any kind of society, but on what terms it is traded or combined with means of production to produce goods and services has historically varied greatly.
In labor economics, the reservation wage is the lowest wage rate at which a worker would be willing to accept a particular type of job. This wage is a theoretical representation of the hourly rate at which an individual values their own leisure time. A job offer involving the same type of work and the same working conditions, but at a lower wage rate, would be rejected by the worker. In this case, based on the reservation wage theory, the individual would be better off not working as they value their leisure at a higher rate than the wage they would receive for working.
The wage curve is the negative relationship between the levels of unemployment and wages that arises when these variables are expressed in local terms. According to David Blanchflower and Andrew Oswald, the wage curve summarizes the fact that "A worker who is employed in an area of high unemployment earns less than an identical individual who works in a region with low joblessness."
In mainstream economic theories, the labour supply is the total hours that workers wish to work at a given real wage rate. It is frequently represented graphically by a labour supply curve, which shows hypothetical wage rates plotted vertically and the amount of labour that an individual or group of individuals is willing to supply at that wage rate plotted horizontally. There are three distinct aspects to labor supply or expected hours of work: the fraction of the population who are employed, the average number of hours worked by those that are employed, and the average number of hours worked in the population as a whole.
Reserve army of labour is a concept in Karl Marx's critique of political economy. It refers to the unemployed and underemployed in capitalist society. It is synonymous with "industrial reserve army" or "relative surplus population", except that the unemployed can be defined as those actually looking for work and that the relative surplus population also includes people unable to work. The use of the word "army" refers to the workers being conscripted and regimented in the workplace in a hierarchy under the command or authority of the owners of capital.
The wage–fund doctrine is a concept from early economic theory that seeks to show that the amount of money a worker earns in wages, paid to them from a fixed amount of funds available to employers each year (capital), is determined by the relationship of wages and capital to any changes in population. In the words of J. R. McCulloch,
wages depend at any particular moment on the magnitude of the Fund or Capital appropriated to the payment of wages compared with the number of laborers... Laborers are everywhere the divisor, capital the dividend.
The Frisch elasticity of labor supply captures the elasticity of hours worked to the wage rate, given a constant marginal utility of wealth. Marginal utility is constant for risk-neutral individuals according to microeconomics. In other words, the Frisch elasticity measures the substitution effect of a change in the wage rate on labor supply. This concept was proposed by the economist Ragnar Frisch after whom the elasticity of labor supply is named.
In economics, a monopsony is a market structure in which a single buyer substantially controls the market as the major purchaser of goods and services offered by many would-be sellers. The microeconomic theory of monopsony assumes a single entity to have market power over all sellers as the only purchaser of a good or service. This is a similar power to that of a monopolist, which can influence the price for its buyers in a monopoly, where multiple buyers have only one seller of a good or service available to purchase from.
The added worker effect refers to an increase in the labor supply of married women when their husbands become unemployed. Underlying the theory is the assumption that married women are secondary workers with a less permanent attachment to the labor market than their partners. As statistics show, married women do not always behave as secondary workers; therefore, the effect is not a universal phenomenon.
During the Khrushchev era, especially from 1956 through 1962, the Soviet Union attempted to implement major wage reforms intended to move Soviet industrial workers away from the mindset of overfulfilling quotas that had characterised the Soviet economy during the preceding Stalinist period and toward a more efficient financial incentive.
The Fei–Ranis model of economic growth is a dualism model in developmental economics or welfare economics that has been developed by John C. H. Fei and Gustav Ranis and can be understood as an extension of the Lewis model. It is also known as the Surplus Labor model. It recognizes the presence of a dual economy comprising both the modern and the primitive sector and takes the economic situation of unemployment and underemployment of resources into account, unlike many other growth models that consider underdeveloped countries to be homogenous in nature. According to this theory, the primitive sector consists of the existing agricultural sector in the economy, and the modern sector is the rapidly emerging but small industrial sector. Both the sectors co-exist in the economy, wherein lies the crux of the development problem. Development can be brought about only by a complete shift in the focal point of progress from the agricultural to the industrial economy, such that there is augmentation of industrial output. This is done by transfer of labor from the agricultural sector to the industrial one, showing that underdeveloped countries do not suffer from constraints of labor supply. At the same time, growth in the agricultural sector must not be negligible and its output should be sufficient to support the whole economy with food and raw materials. Like in the Harrod–Domar model, saving and investment become the driving forces when it comes to economic development of underdeveloped countries.
Wage theft is the failing to pay wages or provide employee benefits owed to an employee by contract or law. It can be conducted by employers in various ways, among them failing to pay overtime; violating minimum-wage laws; the misclassification of employees as independent contractors; illegal deductions in pay; forcing employees to work "off the clock", not paying annual leave or holiday entitlements, or simply not paying an employee at all.
In Marxian economics, surplus value is the difference between the amount raised through a sale of a product and the amount it cost to manufacture it: i.e. the amount raised through sale of the product minus the cost of the materials, plant and labour power. The concept originated in Ricardian socialism, with the term "surplus value" itself being coined by William Thompson in 1824; however, it was not consistently distinguished from the related concepts of surplus labor and surplus product. The concept was subsequently developed and popularized by Karl Marx. Marx's formulation is the standard sense and the primary basis for further developments, though how much of Marx's concept is original and distinct from the Ricardian concept is disputed. Marx's term is the German word "Mehrwert", which simply means value added, and is cognate to English "more worth".
Optimal labour income tax is a sub-area of optimal tax theory which refers to the study of designing a tax on individual labour income such that a given economic criterion like social welfare is optimized.
