PREPARED BY: KAREN GRACE VALDEZ, MBA

Labor Supply: The

Macroeconomic Perspective
Assignment: Gary Becker
1. Beckers theory of marriage

Marriage Labor market
Seeking partners
Obtaining complete
information
Cost of obtaining
additional information
(forgone benefits)
Additional information can
lead to unfavorable
situations, ending the
optimality of the match
Seeking jobs
Obtaining complete
information
Cost of obtaining
additional information
(forgone benefits)
Additional information can
lead to people leaving jobs
Assignment: Gary Becker
2. Household as a little factory (allocate time: work,
household production, household consumption---all
providing utility maximizing commodities)


Assignment: Gary Becker
3. Children are time-intensive durable goods (price =
forgone earnings)


Assignment: Gary Becker
4. Beckers theory of human capital

Firms Workers
Decision to purchase
physical capital
Decision to invest on
education and training
Application: Criminals rationally choose between crime and labor market
work
(recall: Marginalism)

Just the same with LABOR MARKET DISCRIMINATION: analyzed as a
preference that the discriminator is willing to pay.

Assignment: Labor Issue
What could be an evident labor issue in the
Philippines nowadays?
LABOR SUPPLY: The Macroeconomic Perspective
Labor Supply
Aggregate Labor Supply; Labor Supply Curve
In the long run, total labor supply depends on the fertility decisions
made by earlier generations
Labor Force: the population 15 years old and over, whether employed
or unemployed, who contribute to the production of goods and services
in the country
Labor Force Participation Rate= [ total number of persons in the
labor force / total population 15 years old and over ] x 100%
Employment Rate = [ total number of employed persons / total
number of persons in the labor force ] x 100%
Unemployment Rate = [ total number of unemployed persons / total
number of persons in the labor force ] x 100%
Employment-population ratio = [total number of employed/total
population] x 100%

LABOR SUPPLY: The Macroeconomic Perspective
Employed: include all those who, during the reference
period are 15 years old and over as of their last birthday and
are reported either:
At work. Those who do any work even for one hour during
the reference period for pay or profit, or work without pay
on the farm or business enterprise operated by a member of
the same household related by blood, marriage or adoption;
or
With a job but not at work. Those who have a job or
business but are not at work because of temporary
illness/injury, vacation or other reasons. Likewise, persons
who expect to report for work or to start operation of a farm
or business enterprise within two weeks from the date of
the enumerators visit, are considered employed.






LABOR SUPPLY: The Macroeconomic Perspective
Unemployed (ILO definition): include all those who, during the reference period are 15 years old and over
as of their last birthday, are:without work, or had no job/business during the basic survey reference period;
AND
seeking work, i.e., had taken specific steps to look for a job or establish business during the basic survey
reference period; OR not seeking work due to the following reasons:
believe no work available
awaiting results of previous job application;
temporary illness/disability;
bad weather; and
waiting for rehire/job recall
AND currently available for work, i.e., were available and willing to take up work in paid employment or self-
employment during the basic survey reference period, and/or would be available and willing to take up work
in paid employment or self-employment within two weeks after the interview date
NOTE:
The current definition of "unemployed" is based on the International Labor Organization (ILO) concept.
Adopted by the National Statistics Office in April 2005, the ILO concept sets three criteria in order for a
person 15 years old or older to be considered as unemployed. He or she must be without work, AND is
actively seeking work OR not seeking work due to valid reasons, AND currently available for
work.
The old Philippine definition of "unemployed" considered only the first two criteria.
Under the new definition (ILO concept), people unavailable for work, or are available for work but are not
looking for work, are not part of the labor force and are not considered as unemployed.

LABOR SUPPLY: The Macroeconomic Perspective
Underemployed: include all employed persons
who express the desire to have additional hours of
work in their present job or an additional job, or to
have a new job with longer working hours.

Underemployment rate:
[ total number of underemployed persons / total
number of employed persons ] x 100%

LABOR SUPPLY: The Macroeconomic Perspective
Determinants of the Total
Labor Services Available
Births
Deaths
Net immigration
Population
LFPR
Hrs of Work
Quantity of
Labor
Quantity of
Labor
Labor
Supply
Emigrate is to immigrate as go is to come.

Source: NSCB

PREPARED BY: KAREN GRACE VALDEZ, MBA
Labor Supply: The
Microeconomic Perspective
LABOR SUPPLY: The Microeconomic Perspective
Individual Labor Supply (backward bending labor
supply)
Neo-classical model of labor-leisure choice
Utility and indifference curves
Budget Constraints
A Workers (labor supply) optimal decision

The Neo-classical Model of Labor-leisure choice
Isolates other factors that affect labor supply
Satisfaction from consumption of goods and leisure
Goods = value of purchases (C) y-axis
Leisure = number of hours of leisure (L) x-axis
U = f (C,L)
Indifference Curves
Ronnie Cabs is consuming Php 5000 worth of
consumption goods and 100 hours of leisure weekly
Ronnie Cabs level of utility for this particular
consumption basket (above) is 25,000 utils
Ronnie Cabs is indifferent to consuming Php 4,000
worth of goods and 125 hours of leisure or
consuming the consumption basket above
Ronnie Cabs will be happier if he is going to
consume Php 4500 worth of goods and 150 hours of
leisure as this will yield to 40,000 utils
Construct Ronnie Cabs indifference map

Properties of Indifference Curves
1. Downward sloping (Assumption: Ronnie likes both
goods and leisure)
2. Higher indifference curves indicate higher levels of
utility
3. Do not intersect
4. Convex to the origin (MRS in consumption ratio
of marginal utilities)


What is the implication?
Clarissa has relatively steep indifference curves
Roni Pags has relatively flat indifference curves
What is the implication?
Relatively steep indifference curves implies that it
will require a person a substantial bribe to give up an
additional hour of leisure (Clarissa)
Relatively flat indifference curves indicate that the
worker values his leisure time less (Roni Pags)