Labour economists study the economic forces that determine wages and employment. The major objective of this course is to impart knowledge about the dynamics of labour market. This course emphasizes the power of microeconomic reasoning to answer important economic questions. Topics covered include: approaches to labor supply and family coordination of time allocation and commodity demand, incorporating gender and generational bargaining; human capital, job tenure, union status, and discrimination as wage determinants; wage inequality, minimum wages, unions, immigration, and interpretation of compensating variations in wages, job and location amenities. Issues pertaining to the labour market, wage theories, employment policies, trade unions and collective bargaining in the globalized economy have become vitally important for developing countries. In a country like India where the bulk of the labour force is in theunorganized sector and the organized sector is witnessing jobless” growth, the importance of issues such as employment and unemployment as well as livelihood and social security for the growing millions continues to assume significance. This course exposes students to theoretical as well as empirical issues relating to the labour market. The objective of the course is to provide an empirical understanding of the labour market and enable the students to understand applications of formal theoretical models in labour economics to the Indian labour market.
- Campbell R. McConnell, Stanley L. Brue and David A. Macpherson (2017): Contemporary Labor Economics, 11th Edition, McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121.
- George J. Borjas (2016): Labor Economics 7th Edition, McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121.
- J.E. King (2000): Labour Economics.2nd Ed, Macmillan Education.
- Pierre Cahuc, Stéphane Carcillo, André Zylberberg (2014): Labor Economics,2nd Ed,MIT Press.
- Ronald G. Ehrenberg and Robert S. Smith (2012): Modern Labor Economics: Theoryand Public Policy, 11th Edition, Prentice Hall.
- Stephen Smith (2003): Labour Economics, 2nd Ed, Routledge.
Unit- 1: Labour Markets: Supply of Labour (20 Hours)
1.1. Theory of Individual Labor Supply: The Work–Leisure Decision: Basic Model-- Indifference Curves-- Opportunity Cost of Leisure --Budget Constraint--Utility Maximization 1.2 Wage Rate Changes: Income and Substitution Effects--Rationale for the Backward- Bending Supply Curve—Wage Elasticity of Labour Supply— Labor Supply of Women— 1.3 Policy Application: Cash Grants and Labor Supply-The Impact of Welfare on Labor Supply--The Earned Income Tax Credit. 1.4 Participation Rates and Hours of Work: Becker’s Model: The Allocation of Time--- Commodity Characteristics--Household Choices--Becker Income Effect--Becker Substitution Effect--Participation Rates--Cyclic Changes in Participation Rates--Added-Worker Effect- Discouraged-Worker Effect-- Life Cycle Aspects of Labor Supply -The Choice of Retirement Age--Policy Application: Child Care and Labor Supply.
- 1.1. Theory of Individual Labor Supply: The Work–Leisure Decision: Basic Model– Indifference Curves– Opportunity Cost of Leisure –Budget Constraint–Utility Maximization
- 1.2 Wage Rate Changes: Income and Substitution Effects–Rationale for the Backward- Bending Supply Curve—Wage Elasticity of Labour Supply— Labor Supply of Women
- 1.3 Policy Application: Cash Grants and Labor Supply-The Impact of Welfare on Labor Supply–The Earned Income Tax Credit.
- 1.4 Participation Rates and Hours of Work: Becker’s Model: The Allocation of Time— Commodity Characteristics–Household Choices–Becker Income Effect–Becker Substitution
- 1.5Participation Rates–Cyclic Changes in Participation Rates–Added-Worker Effect- Discouraged-Worker Effect– Life Cycle Aspects of Labor Supply -The Choice of Retirement Age–Policy Application: Child Care and Labor Supply.
Unit- 2: Labour Markets: Demand for Labour: (20 Hours)
2.1 The Production Function--The Employment Decision in the Short Run-- The Short-Run Labor Demand Curve for a Firm and Industry.2.2 The Employment Decision in the Long Run: Iso-quant and Iso-cost Approach: The Long- Run Demand Curve for Labor--Substitution and Scale Effects. 2.3 Labor Demand Elasticity--Elasticity of Substitution---- The Hicks–Marshall Laws of Derived Demand---The Cross-Wage Elasticity of Demand. 2.4 Labor Market Equilibrium: Equilibrium in a Single Competitive Labor Market-- Competitive Equilibrium across Labor Markets. Policy Application: Payroll Taxes and Subsidies--Deadweight Loss--Employment Subsidies-- Effects of Minimum Wage Laws --The Labor Market Impact of Immigration. The Cobweb Model.
- 2.1 The Production Function–The Employment Decision in the Short Run– The Short-Run Labor Demand Curve for a Firm and Industry
- 2.2 The Employment Decision in the Long Run: Iso-quant and Iso-cost Approach: The Long- Run Demand Curve for Labor–Substitution and Scale Effects.
- 2.3 Labor Demand Elasticity–Elasticity of Substitution—- The Hicks–Marshall Laws of Derived Demand—The Cross-Wage Elasticity of Demand.
- 2.4 Labor Market Equilibrium: Equilibrium in a Single Competitive Labor Market– Competitive Equilibrium across Labor Markets.
- 2.5Policy Application: Payroll Taxes and Subsidies–Deadweight Loss–Employment Subsidies– Effects of Minimum Wage Laws –The Labor Market Impact of Immigration. The Cobweb Model
Unit- 3: Wage Determination and the Allocation of Labor (10 Hours)
3.1 Theory of A Perfectly Competitive Labor Market--Wage and Employment Determination: Monopoly in The Product Market---Monopsony-Wage Determination within the Firm. 3.2 The Employment Contract--Motivating Workers--Motivating the Individual in a Group-- Productivity and the Basis of Yearly Pay--Productivity and the Level of Pay --Productivity and the Sequencing of Pay. 3.3 Incentive Pay: Piece Rates and Time Rates—Tournament— Economics of Fringe Benefits- -Theory of Optimal Fringe Benefits---Profit Sharing-Equity Compensation---Tournament Pay- -Efficiency Wage Payments- Hedonic Wage Theory and Employee Benefits (10 Hours)
- 3.1 Theory of A Perfectly Competitive Labor Market–Wage and Employment Determination: Monopoly in The Product Market—Monopsony-Wage Determination within the Firm.
- 3.2 The Employment Contract–Motivating Workers–Motivating the Individual in a Group– Productivity and the Basis of Yearly Pay–Productivity and the Level of Pay –Productivity and the Sequencing of Pay.
- 3.3 Incentive Pay: Piece Rates and Time Rates—Tournament— Economics of Fringe Benefits- -Theory of Optimal Fringe Benefits—Profit Sharing-Equity Compensation—Tournament Pay- -Efficiency Wage Payments- Hedonic Wage Theory and Employee Benefits
Unit- 4: Labour Union and Wage Bargaining (25 Hours)
- 4.1. Determinants of Union Membership–The Demand for and Supply of Union Jobs– The Structural Change Hypothesis—Managerial Opposition Hypothesis–The Substitution Hypothesis–Monopoly Union Model–Efficient Contracts Model.
- 4.2. Strikes and The Bargaining Process–The Activities and Tools of Collective Bargaining– Bargaining and the Threat of Strikes– Accident Model–Asymmetric Information Models— Union Wage Effects–Threat and Spill-over Effects–Unions and Wage Dispersion–Unions and Fringe Benefits–Nonwage Effects of Unions.
- 4.3 The Economic Impact of Unions: The Union Wage Advantage–Spill over Effect–Threat Effect– Other Effects –The Effects of Unions on Employment, Productivity and Profits
- 4.4 State and social security of labour – Concept of social security and its evolution; Social assistance and social insurance; Labour market reforms – Exit policy, need for safety nets, measures imparting flexibility in labour markets; National Commission on Labour; Globalization and labour markets.
Unit- 5 Unemployment (15 Hours)
5.1 Unemployment Types— A Stock-Flow Model of the Labor Market. 5.2 The Theory of Job Search--Effects of Unemployment Insurance Benefits 5.3 Structural Unemployment--Downward Wage Rigidity and Union, Specific Human Capital, Asymmetric Information, Worker Status and Social Norms-- Implicit Contracts---Insider– Outsider Theories- Efficiency Wages and Unemployment
- 5.1 Unemployment Types— A Stock-Flow Model of the Labor Market.
- 5.2 The Theory of Job Search–Effects of Unemployment Insurance Benefits
- 5.3 Structural Unemployment–Downward Wage Rigidity and Union, Specific Human Capital, Asymmetric Information, Worker Status and Social Norms– Implicit Contracts—Insider– Outsider Theories- Efficiency Wages and Unemployment