What is labor economics?

Labor economics is the study of the labor force as an element in the process of production. The labor force comprises all those who work for gain within the labor market, whether as employees, employers, or as self-employed, but also the unemployed, who are seeking work. Labor economics involves the study of all that affects these workers before, during, and after their working lives, for example, childcare, education, pay and incentives, fertility, discrimination, their non-work time, and pension reforms.

Labor markets function through the interaction of workers and employers and can be bounded geographically within countries or regions, or be global. Labor economics also concerns itself with the mobility of workers within and across such markets and within and across their employers.

At times of crises labor economics can also help us to understand, and provide solutions to, the problems caused by economic shocks such as recessions or global pandemics like that caused by Covid-19.

This page gathers together a selection of articles to introduce some of the key issues in labor economics. 

  • Parental leave and maternal labor supply Updated

    Parental leave increases the family–work balance, but prolonged leave may have negative impacts on mothers’ careers

    Astrid Kunze, June 2022
    Numerous studies have investigated whether the provision and generosity of parental leave affects the employment and career prospects of women. Parental leave systems typically provide either short unpaid leave mandated by the firm, as in the US, or more generous and universal leave mandated by the government, as in Canada and several European countries. Key economic policy questions include whether, at the macro level, female employment rates have increased due to parental leave policies; and, at the micro level, whether the probability of returning to work and career prospects have increased for mothers after childbirth.
  • Women’s labor force participation Updated

    Family-friendly policies increase women’s labor force participation, benefiting them, their families, and society at large

    Anne E. Winkler, February 2022
    Female labor force participation is mainly driven by the value of their market wages versus the value of their non-market time. Labor force participation varies considerably across countries. To understand this international variation, it is important to further consider differences across countries in institutions, non-economic factors such as cultural norms, and public policies. Such differences provide important insights into what actions countries might take to further increase women's participation in the labor market.
  • Do labor costs affect companies’ demand for labor? Updated

    Overtime penalties, payroll taxes, and other labor policies alter costs and change employment and output

    Daniel S. Hamermesh, February 2021
    Higher labor costs (higher wage rates and employee benefits) make workers better off, but they can reduce companies’ profits, the number of jobs, and the hours each person works. The minimum wage, overtime pay, payroll taxes, and hiring subsidies are just a few of the policies that affect labor costs. Policies that increase labor costs can substantially affect both employment and hours, in individual companies as well as in the overall economy.
  • The impact of monitoring and sanctioning on unemployment exit and job-finding rates Updated

    Job search monitoring and benefit sanctions generally reduce unemployment duration and boost entry to employment in the short term

    Duncan McVicar, June 2020
    Unemployment benefits reduce incentives to search for a job. Policymakers have responded to this behavior by setting minimum job search requirements, by monitoring to check that unemployment benefit recipients are engaged in the appropriate level of job search activity, and by imposing sanctions for infractions. Empirical studies consistently show that job search monitoring and benefit sanctions reduce unemployment duration and increase job entry in the short term. However, there is some evidence that longer-term effects of benefit sanctions may be negative.
  • The determinants of housework time Updated

    Boosting the efficiency of household production could have large economic effects

    Leslie S. Stratton, May 2020
    The time household members in industrialized countries spend on housework and shopping is substantial, amounting to about half as much as is spent on paid employment. Women bear the brunt of this burden, driven in part by the gender wage differential. Efforts to reduce the gender wage gap and alter gendered norms of behavior should reduce the gender bias in household production time and reduce inefficiency in home production. Policymakers should also note the impact of tax policy on housework time and its market substitutes, and consider ways to reduce the distortions caused by sales and income taxes.
  • International trade regulation and job creation Updated

    Trade policy is not an employment policy and should not be expected to have major effects on overall employment

    Trade regulation can create jobs in the sectors it protects or promotes, but almost always at the expense of destroying a roughly equivalent number of jobs elsewhere in the economy. At a product-specific or micro level and in the short term, controlling trade could reduce the offending imports and save jobs, but for the economy as a whole and in the long term, this has neither theoretical support nor evidence in its favor. Given that protection may have other—usually adverse—effects, understanding the difficulties in using it to manage employment is important for economic policy.
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