Economics of Human Resources

1
Economics of Human Resources

• Introduction
• Professor Wally Hendricks

2
Nuts Bolts

• Miscellaneous
• wally-h_at_uiuc.edu 217 333-6028
• course website www.ilir.uiuc.edu/courses/lir545
• read over the course syllabus carefully links
  to most questions about course specifics
• Grading
• participation
• Group work
• Midterm Final
• Honor Code when you can work together

3
Labor Economics Terms and Statistics
4
Where do we get the data?

• Current Population Survey (CPS) 60,000
  households surveyed each month. Households stay
  in sample for 3 months with 1/3 exiting each
  month.
• Provides good nation-wide estimates of labor
  statistics
• Available now almost immediately for Seasonally
  UNADJUSTED data
• Area Wage Surveys Done on ad hoc basis
• Other surveys National Compensation Survey,
  etc.
• Census Every 10 years

5
Labor Force

• Persons 16
• With job or unemployed
• Unemployed
• must be looking for job within last month
• can be on layoff
• can be on strike
• Does not count persons in school who are
  unemployed

6
Labor Force is Growing
Chart 1. Labor force growth, by decades, 1950s to
2005 and projected to 2040s
7
Why might the projections look like this?

• Aging baby boomers
• Stabilization of womens LFP (peak 1999 at 60)
• Increasing racial and ethnic diversity
• Tend to have higher fertility rates
• Tend to have higher LFPs

8
Labor Force Participation

• Labor Force/Population
• 7/04
• 66 (about same as last year)
• Men 16 73.9 (slight increase)
• Women 16 58.8 (slight decrease) (decline since
  1999)

9
Mens LFP by Country
10
Women LFP by Country
11
Ratio Mens to Womens LFP
12
Unemployment

• Unemployed Have looked for a job in the last
  month
• Unemployment Rate UE/LF
• Affected by movement in UE
• Affected by movement in LF
• LF and UE are negatively related
• Discouraged workers vs added workers

13
Unemployment is lowfor the country

• Data for April 2007
• UE 4.5
• Women 4.4 Men 4.5
• Blacks 8.2
• Hispanic 5.4
• Black Male teenagers 16-19 34

14
LFP is inversely related
15
Unemployment varies by group
16
UE varies by length
17
Employment

• Employment Rate E/Population
• Trended upward
• Primarily women in LF
• Also low UE
• 4/07
• Total 63
• Males 72.0 (20)
• Females57.4 (20)

18
Wage Rate

• Nominal wage rate(w) Actual wage at a point in
  time
• Real wage rate(w/p) Index of wages to price
  level
• Typical Price Index Urban Wage Earners CPI
• For Real Wages to increase, wages must increase
  faster than the CPI

19
CPI

• Calculated as a weighted average of prices from a
  bundle of goods that is fixed at a point in time
• Currently using 1982-84100
• Comparisons show price increases with fixed
  commodity weights
• 04/07202.1 04/06197.2 inflation4.93/197.2
  2.5

20
Average Hourly Wages Private Sector
21
CPI
22
Real Earnings Compared to 1987
23
Changes in the CPI/Year
24
Hourly Wages and Real Wages

• Hourly wage of production workers
• 4/07 17.25
• 4/06 16.63
• 3.7 growth in nominal wages 2.5 growth in
  prices -gt 1.2 growth in real wages
• 1964 2.53 Did the real wage grow from 1964 to
  2007?

25
Comparisons of Real Wages

• Find CPI for 6/1964
• 31.0
• Put 1964 wage in 2007 dollars
• 2.53 X 202.13/31 16.50
• Real wages increase of 17.25-16.500.75!

26
Standards of Living

• If real wages have not gone up what about the
  standard of living?
• Has gone up much more
• two wage earner families
• impact of technology understated
• Real wages have improved much more for people
  with higher education

27
Employer Cost Index

• From employers perspective, it is real costs
  that are important. These include fringe benefit
  costs.
• Total costs have typically gone up faster than
  wages or salaries (benefit cost increase faster
  than wage costs) Wages are about 70 of total
  compensation
• Health Insurance averages about 8 of total
  compensation

28
Employer Cost Index
29
Employer Cost Indices

• http//martincapital.com/chart-pgs/CH_labcs.HTM

30
Wage Indices or Price Indices?

• In general, wage indices rise faster than price
  indices
• Social Security indexed on wage indices
• Proposal to move toward price indices for high
  income people and use wage indices for low income
  people.