If you’ve ever started a business, worked in a managerial position, or studied the job market, you may have encountered the term “labor economics.” What is it, though? What does it encompass and how is it used?
The answer to those questions is simultaneously simple and complex. First, it helps to define what constitutes “labor.” Labor is a measure of the work done by human beings, in contrast to other factors of production such as land or capital. Discussing labor generally requires dividing participants into two groups, the supply side (workers) and the demand side (employers).
Labor, therefore, is a commodity supplied by workers in exchange for wages paid by the companies which have a demand for that commodity. And labor economics is the study of how valuable that commodity is and why.
Labor economics studies the labor force and the role it plays in the process of production. It studies the economic behavior of employees and employers in response to changing prices, profits, wages, and working conditions. And it studies the changing legal and institutional structures which influence outcomes in labor markets.
In the broadest terms, it is the study of anything and everything that affects who has a job, why they have a job, and what that job entails. That sounds easy enough. But it also sounds very general and inclusive, even intimidatingly so. After all, an awful lot of things can fit into that description. And an awful lot of things do. So much so that it has its own dictionary’s worth of terminology to learn.
Labor economics encompasses economics of education, health economics, family economics, and several other fields. Psychology, social structures, and government activities all must be taken into consideration.
Additionally, labor economics can be applied both in terms of microeconomics (by studying the role individual employees and companies have on the labor market) or macroeconomics (by studying the relationship between the labor market, the financial market, the goods market, and the foreign-trade market).
The extreme inclusiveness of labor economics, then, necessitates that many who study it choose a specialization. That is, it’s easier to focus one’s studies on a particular corner of the vast landscape that labor economics comprises and to learn that corner inside and out than it is to try to learn every aspect of labor economics at a similarly in-depth level.
An economics damages expert specializes in predicting and measuring losses in wages, profits, value, and earning capacity, typically in response to harmful acts (i.e. lawsuits, public relations faux pas, injuries, etc.). Such information can be useful to a company weighing the risks versus rewards of settling a civil suit out of court, for example, or to an employee trying to show the effect a job site injury has had on their future earning potential.
A managerial economics consultant, meanwhile, works directly with senior management officers of a company and, through research and analysis of company data, can provide advice on how best to utilize, expand, or shrink its current labor force.
These are just two of many examples showing how different aspects and applications of labor economics are used in everyday business. There is hardly any element of the production process that is not affected by or encompassed within labor economics in some way. Having a grasp of what labor economics comprises and how labor economics works, therefore, is of utmost importance for anyone involved in the business. It is, after all, a fundamental part of the business itself.