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What does labor economics study?

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Labor economics analyzes the dynamics of the labor market.

Labor economics is a branch of economics that seeks to examine the functioning and dynamics of wage labor markets. Work is a measure of the work done by human beings. Some economists refer to skills and knowledge as human capital.

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Historically, economists viewed labor markets as being similar to other markets, such as money and product markets, in that the forces of supply and demand also determine the dynamics of labor. . The labor market, however, is somewhat different from the product market. In the product market, when the price increases, more products are produced in the long run. However, the labor supply is almost fixed since human beings have a fixed time which is 24 hours a day. With the increase in wages, people tend to devote more time to leisure activities and work.

Relevant applications

The concept of labor economics is widely used in personal economics and in the human resource departments of organizations. This is practically applicable within the individual and throughout the economy. This is because workers do not move smoothly between companies. Wage rates are also, to a greater extent, set by individual firms and not necessarily on the basis of

Evolution over time

The study of labor economics has evolved from monopsony models in microeconomics to more complex environments involving many employees. The use of technology in the workplace has further complicated the subject. Complex work models like moonlighting and part-time work are now a reality in today’s work environment.

Praise and criticism

The study of labor economics has been the subject of a growing wave of criticism. Some economists have argued that the labor market is such a complex issue that has many different dimensions and cannot be explored using price alone. It also involves the psychological aspect of the individual, religion and family background. Another problem is ignoring unpaid work. This includes interns and unpaid volunteers whose contribution is crucial in an economy. Domestic production which involves household maintenance, childbirth, care for the sick and the elderly, as well as breastfeeding are all chores that are neglected in the labor economy. The question of wage slavery was also the subject of strong criticism from the socialists. Wage slavery is a situation where a person performs a task because of the financial gains he will derive from it and not because of passion or his free choice.

It has also been argued that the study makes very unrealistic assumptions. The hypothesis of perfect information by the employer is totally unrealistic because no employer can have absolute knowledge of the labor market. Another assumption is that employees have the ability to move smoothly between companies. This is totally wrong as different companies have different employee needs and employee on the other hand, employees have varying skills and expertise.

On the other hand, proponents of this study have argued that labor economics is important in determining the wages to be paid to workers. External factors that can affect work are also studied, which helps to create a conducive working environment.

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Definition of welfare economics

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What is the welfare economy?

Well-being economics is the study of how the allocation of resources and goods affects social well-being. This is directly related to the study of economic efficiency and income distribution, as well as how these two factors affect the general well-being of people in the economy. Concretely, well-being economists seek to provide tools to guide public policies in order to obtain social and economic results beneficial for the whole of society. However, the economics of well-being is a subjective study that depends heavily on the assumptions chosen about how well-being can be defined, measured and compared for individuals and for society as a whole.

Key points to remember

  • Welfare economics is the study of how the structure of markets and the distribution of goods and economic resources determine the general welfare of society.
  • Welfare economics seeks to assess the costs and benefits of changes in the economy and to orient public policies towards increasing the total good of society, using tools such as analysis cost-benefit and social welfare functions.
  • The economics of well-being depends heavily on assumptions about the measurability and comparability of human well-being between individuals, and the value of other ethical and philosophical ideas about well-being.

Understanding the economics of well-being

Welfare economics begins with the application of utility theory in microeconomics. Utility refers to the perceived value associated with a particular good or service. In dominant microeconomic theory, individuals seek to maximize their utility through their actions and consumption choices, and the interactions of buyers and sellers through the laws of supply and demand in competitive markets generate surplus for consumers and producers.

The microeconomic comparison of consumer and producer surpluses in markets under different market structures and conditions provides a basic version of welfare economics. The simplest version of welfare economics can be thought of as the following question: “What market structures and what arrangements of economic resources between individuals and production processes will maximize the total sum of utility received by all individuals or will maximize the total consumer and producer surplus in all markets? ? “The welfare economy seeks the economic state that will create the highest overall level of social satisfaction among its members.

Pareto efficiency

This microeconomic analysis leads to the condition of Pareto efficiency as an ideal in welfare economics. When the economy is in a state of Pareto efficiency, social welfare is maximized in the sense that no resources can be reallocated to improve an individual’s situation without harming at least one individual. One of the goals of economic policy might be to try to move the economy to an efficient Pareto state.

To assess whether a proposed change in market conditions or in public policy will advance the economy towards Pareto efficiency, economists have developed various criteria, which estimate whether the welfare gains from a change in the economy economy outweigh the losses. These include the Hicks Criterion, Kaldor’s Criterion, Scitovsky’s Criterion (also known as the Kaldor-Hicks Criterion), and Buchanan’s Unanimity Principle. In general, this type of cost-benefit analysis assumes that the gains and losses of public services can be expressed in monetary terms. It also treats issues of equity (such as human rights, private property, justice and fairness) as out of the question or assumes that the status quo represents some sort of ideal over these types. of questions.

Maximization of social welfare

However, Pareto efficiency does not provide a one-size-fits-all solution to how the economy should be organized. Multiple Pareto efficient arrangements of the distributions of wealth, income and production are possible. Shifting the economy towards Pareto efficiency might be an overall improvement in social welfare, but it does not provide a specific goal as to the arrangement of economic resources between individuals and markets that will actually maximize the good. -be social. To do this, welfare economists have designed various types of welfare functions. Maximizing the value of these functions then becomes the objective of the economic analysis of the well-being of markets and public policies.

The results of this type of social welfare analysis depend heavily on assumptions about the possibility and how utility can be added or compared between individuals, as well as on philosophical and ethical assumptions about the value to be placed on the good. -being of different individuals. These allow for the introduction of ideas about equity, justice and rights to be incorporated into the analysis of social welfare, but make the exercise of welfare economics an inherently subjective area. and possibly contentious.

How is economic well-being determined?

Under the prism of Pareto efficiency, optimal welfare, or utility, is achieved when the market is allowed to reach an equilibrium price for a given good or service – it is at this point that consumer and producer surpluses are maximized.

However, the goal of most modern welfare economists is to apply notions of justice, rights and equality to the machinations of the market. In this sense, markets that are “efficient” do not necessarily achieve the greatest social good.

One of the reasons for this disconnection: the relative usefulness of different individuals and producers when evaluating an optimal outcome.Welfare economists could theoretically argue, for example, for a higher minimum wage – even if this reduces producer surplus – if they believe that the economic loss to employers would be felt less acutely than. the increased utility experienced by low-wage workers.

Practitioners of normative economics, based on value judgments, may also try to measure the desirability of “public goods” that consumers do not pay for in the free market.

The opportunity to improve air quality through government regulations is one example of what standards economy practitioners might measure.

Measuring the social utility of various outcomes is an inherently imprecise endeavor, which has long been a critique of welfare economics. However, economists have a number of tools at their disposal to assess the preferences of individuals for certain public goods.

They can conduct surveys, for example, asking how much consumers would be willing to spend on a new highway project. And as economist Per-Olov Johansson points out, researchers could estimate the value of a public park, for example, by analyzing the costs people are willing to incur to visit it.

Another example of applied welfare economics is the use of cost-benefit analyzes to determine the social impact of specific projects.In the case of a town planning commission trying to assess the creation of a new sports arena, the commissioners would likely balance the benefits for fans and team owners with those of businesses or owners displaced by new ones. infrastructure.

Critique of the welfare economy

In order for economists to arrive at a set of policies or economic conditions that maximize social utility, they must engage in interpersonal comparisons of utility. To build on a previous example, one would have to infer that minimum wage laws would help low-skilled workers more than they hurt employers (and, potentially, some workers who might lose their jobs).

Critics of welfare economics argue that making such comparisons accurately is an unrealistic goal. It is possible to understand the relative impact on utility, for example, of price changes to the individual. But, from the 1930s, British economist Lionel Robbins argued that comparing the value that different consumers place on a set of goods is less practical. Robbins also disparaged the lack of objective measurement units to compare utility between different market players.

Perhaps the most powerful attack on welfare economics is that of Kenneth Arrow, who in the early 1950s introduced the ‘impossibility theorem’, which suggests that the inference of social preferences in aggregating individual rankings is inherently flawed. It is rare that all the conditions combined make it possible to arrive at a true social order of the results available.

If, for example, you have three people and they are asked to rank different possible outcomes (X, Y, and Z), you might get these three orders:

  1. Y, Z, X
  2. X Y Z
  3. Z, X, Y

You might conclude that the group prefers X over Y because two people ranked the first over the second. Similarly, we can conclude that the group prefers Y to Z, since two of the participants put them in that order. But if we therefore expected X to rank above Z, we would be wrong – in fact, the majority of subjects put Z before of X. As a result, the desired social order is not achieved – we are simply stuck in a cycle of preferences.

Such attacks have dealt a serious blow to the welfare economy, whose popularity has declined in popularity since its heyday in the mid-20th century. However, it continues to attract followers who believe, despite these difficulties, that economics is, in the words of John Maynard Keynes, “a moral science.”

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What legendary fashion photographer Bill Cunningham taught us about the labor economy – Quartz

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When legendary New York Times fashion photographer Bill Cunningham passed away on Saturday, June 25, fans took to Twitter to pay their respects. The feelings reveal that he is equally admired for the way he conducted his work as he is for his enterprising street photography.

Even in his 80s, Cunningham toured the city by bike in a blue french worker jacket, taking pictures of anything that caught his eye. He has photographed his share of galas, but would only ever accept a glass of water from his hosts. Vanity Fair tech correspondent Nick Bilton, who previously worked with Cunningham at The Times, tweeted:

The Time obituary describes Cunningham as fiercely independent, to the point where he would tear up employers’ checks if he felt that accepting the checks compromised his freedom. Many have circulated one of Cunningham’s most popular quotes: “Money is the cheapest thing. Freedom and liberty are the most expensive. He refused to take a full-time position at The Times for two decades until a bicycle accident in 1994. “It was about health insurance,” he once told The Times.

Through his personal and professional choices, Cunningham has revealed how fundamentally flawed the American model of employment is. When employers are the sources of important protections (beyond a salary) required for a good life, namely health insurance, then the labor system will always be in favor of employers.

Liquid Talent co-founder Alex Abelin, a former employee of Google (Alphabet) who is a strong advocate of decoupling benefits from employer benefits, once said: “When did we, as a company, agreed that the safety nets and structures of our health should be given by a company? It’s a dangerous deal we have where companies take care of us and that’s how we live our lives.

This is certainly how Cunningham saw it. In addition to cycling around town, he slept on a cot in a minimalist apartment. Yet this way of life and this worldview is what gave more power to his work. He is considered one of New York’s most important cultural anthropologists, as discussed in the film Bill Cunningham New York.

The paradox of innovation, especially in large companies, is that as freedom decreases, creativity also decreases. In order to cultivate more Cunningham, workers need more freedoms and freelancers need more protections. Truly enterprising work often comes from those who are willing to give up security at all costs, but it does not have to be so.


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What legendary fashion photographer Bill Cunningham taught us about the labor economy – Quartz

By Labor economics No Comments

When legendary New York Times fashion photographer Bill Cunningham passed away on Saturday, June 25, fans took to Twitter to pay their respects. The feelings reveal that he is equally admired for the way he conducted his work as he is for his enterprising street photography.

Even in his 80s, Cunningham toured the city by bike in a blue french worker jacket, taking pictures of anything that caught his eye. He has photographed his share of galas, but would only ever accept a glass of water from his hosts. Vanity Fair tech correspondent Nick Bilton, who previously worked with Cunningham at The Times, tweeted:

The Time obituary describes Cunningham as fiercely independent, to the point where he would tear up employers’ checks if he felt that accepting the checks compromised his freedom. Many have circulated one of Cunningham’s most popular quotes: “Money is the cheapest thing. Freedom and liberty are the most expensive. He refused to take a full-time position at The Times for two decades until a bicycle accident in 1994. “It was about health insurance,” he once told The Times.

Through his personal and professional choices, Cunningham has revealed how fundamentally flawed the American model of employment is. When employers are the sources of important protections (beyond a salary) required for a good life, namely health insurance, then the labor system will always be in favor of employers.

Liquid Talent co-founder Alex Abelin, a former Google employee (Alphabet) who is a strong advocate of decoupling benefits from employer benefits, once said: “When did we, as a company, agreed that the safety nets and structures of our health should be given by a company? It’s a dangerous deal we have where companies take care of us and that’s how we live our lives.

This is certainly how Cunningham saw it. In addition to cycling around town, he slept on a cot in a minimalist apartment. Yet this way of life and this worldview is what gave more power to his work. He is considered one of New York’s most important cultural anthropologists, as discussed in the film Bill Cunningham New York.

The paradox of innovation, especially in large companies, is that as freedom decreases, creativity also decreases. In order to cultivate more Cunningham, workers need more freedoms and freelancers need more protections. Truly enterprising work often comes from those who are willing to give up security at all costs, but it does not have to be so.


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The welfare economy by trickle down? – Acton Institute PowerBlog

By Welfare economics No Comments

At NRO, Thomas Sowell tackles what he calls the “lie” of the “trickle-down economy”. So, writes Sowell, “the ‘drooping’ lie is a 100 percent lie.” Sowell cites Bill de Blasio and Barack Obama as figures perpetuating the “lie”, as well as writers in “the New York Times, in the Washington post, and by professors from prestigious American universities – and even from as far away as India. “

But we should also note that “runoff theories” are mentioned in Evangelii Gaudium, also: “Some people continue to defend fallout theories which assume that economic growth, encouraged by a free market, will inevitably succeed in bringing more justice and inclusion to the world.

In the midst of his discussion, Sowell asks the following penetrating questions:

Why would anyone advocate that we “give” something to A in the hope that it would trickle down to B? Why on earth wouldn’t a sane person give it to B and eliminate the middleman?

Whether or not there is a “trickle-down economy” in discussions of the market economy, isn’t there something similar to what Sowell calls for at play in wellness programs? usual redistributives? Do we not “give” something to bureaucracies and government agencies in the hope that they will in turn redistribute it (hopefully in addition to a trickle) to the poor?

And with regard to the runoff part of the runoff welfare economy, Juan de Mariana observed a long time ago that “money, transferred by many ministers, is like cash. It always leaves a residue in the containers. So why not give directly to the poor and cut out the middlemen, as Sowell asks?

It is precisely the discussion taking place on the Bleeding Heart Libertarians blog, among others, on direct cash transfers to the poor in the place of bureaucratic welfare programs. Head over to the BHL blog to check it out.

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