Labor and the Factor Market
The factor market includes
Land, Labor, and Capital.
– Land: The space needed to do
work, as well as the natural
resources of the Earth.
– Labor: This is the work
produced by people, as opposed
to the work produced by robots
or other means.
– Capital: Money resources, as
well as machines, buildings,
and other assets (cars,
Capital and Labor
When you hear the phrase “Capital and
Labor” or “Capital vs. Labor” what does
this mean to you?
– Labor is one of the three main factors of
production, along with capital, and resources
– Discussions of labor take many forms, from
employment numbers to wages, education
levels and union membership.
Employment is the measure of how many people are
participating as a legal worker in the United States. This
means that people who are employed work for a wage(at
least 1 hour a week), or are employed by family (as on a
farm), and are at least 16 years old, while obeying the laws
of employment for their area.
This is not as straightforward as it may sound. Many
people work two or more jobs, and that gets counted as
separate employed people. Part time workers are counted
the same as full time employees in terms of total number
employed. Even more complicated are the statistics for the
unemployed, and those who are not participating in the
Unemployed workers are those who are
collecting unemployment benefits, and are
still looking for work.
So for a person to be counted as
unemployed, they need to be actively
getting benefits from an unemployment
Many people do not, and people whose
benefits expire (usually about 6 months) are
not counted on the unemployment rolls.
This means there can be a great many
people looking for work who are not
counted as being unemployed. Instead they
are called discouraged workers, or simply
not participating in the workforce.
Because of this, unemployment statistics do
not accurately reflect the number of people
who are not gainfully employed who simply
have not found a job yet.
Labor: Unemployment Statistics
Unemployment statistics are an important
measure of how well the economy is doing.
If these numbers are not reflective of the actual
situation, this can then affect how government
responds to periods or prolonged
Employment in the United States goes through
many different phases. Seasonal employment
can vary considerably, especially around the
holidays (Thanksgiving and Christmas).
Layoffs by big companies can number in the
tens of thousands, and can devastate
communities dependant on a particular
employer (such as GM).
Labor: Wages and Benefits
The concepts of supply and demand work just as
well for labor as they do for other products in a
Wages are heavily dependant on the type of work,
and the education and skill levels of the worker.
Benefits vary from company to company, and
might not be available for some types of jobs.
Wages and Benefits in the Labor
Typically when labor is abundant, wages and benefits are decreased. These
kinds of situations are called surpluses of labor.
When the labor market tightens, companies have to compete to get labor, so
wages and benefits increase in order to attract workers.
Since businesses tend to like labor surpluses (because they lower wages), a
labor surplus is generally thought of as good within business circles.
Globalization has this effect on the labor supply, and this is used to push down
Percentage of Wages
around the World
Benefits are a tricky issue, since the cost of some
benefits, especially medical insurance, has gone
up so radically, it becomes very difficult for
businesses to continue to offer these benefits.
As costs go up, it is becoming common for
employers to reduce benefits to workers, in order
to keep total costs down and remain competitive
on the market.
Minimum wages do have an effect of how
employers decide on their workforce levels.
When a company is faced with difficult choices,
usually it is difficult to see the larger benefits of
having these wages increased throughout an area.
This is because when people have more to spend,
the demand curve shift out, increasing revenues.
This can be difficult for some businesses to
anticipate, and therefore most businesses are
against minimum wages.
Some of the most contentious debates throughout
the late 19th and through the 20th century have
been the roles of capital and labor in the larger
Karl Marx, the idealist who came up with
communism, believed that labor was the source of
all wealth, and therefore labor should be in charge
of the distribution of wealth.
On the other hand, capital (money) is the symbolic
trade unit of goods and labor, and without it, it
becomes very difficult to start and keep businesses
The debate is what respective roles capital and
labor should have in society with respect to the
Who should be rewarded, those who work (labor)
or those who invest (capital).
For most of the western world, the answer has
While workers do receive some benefits, typically
the investors gain most of the benefits of
As a result, usually “capital” dictates to “labor”
the terms of employment, wages, and benefits.
This balance (or imbalance) of power has led to
many confrontations, some of them deadly.
To counterbalance the power of capital in the
society, labor uses collective action, or unions, to
bargain for better wages, working conditions, or
Because of the growing tilt in society against labor
unions, collective bargaining is becoming more
difficult, especially with respect to globalization.
With a large labor supply, it is difficult for
workers to collectively bargain for better pay,
when workers from other countries will do the
same work (or more) for far lower wages.