Discuss the five important labor market trends and its effect on labor productivity.
Explanation of Solution
There are five important trends in labor market. These are classified into two groups as trends in real wages and trends in employment and
- Extensive growth in real wage rate over the twentieth century.
- Decreasing trend in real wage rate since the early 1970.
- An increase in wage inequality in U.S.
- Decreasing trend in the rapid employment growth in past 50 years.
- High rates of unemployment in European countries during the past three decades.
Among these trends, the first three come under the category of trends in real wage and the remaining two comes under the category of trends in employment and unemployment. Extensive growth in real wage represents an increase in labor productivity and as a result, the demand for labor exceeds the supply of labor. A fall in real wage reduces labor productivity and the demand for and supply of labor grew equally. An increase in real wage among higher labor productivity increases the living standard of people. On the other hand, an increase in real wage for some workers increase the wage inequality while, in European countries potential laborers have been sidelined by a higher rate of unemployment.
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