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DETERMINANTS OFDEMAND FOR LABOUR
Wage Rate
Productivity of Labour
Price of Output
Substitutability of Labourwith other factors ofproduction
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DETERMINANTS OF SUPPLY FOR LABOUR
The Number of births
The number of deaths
The number of peoplemigrating in and out of thearea
The number of people whochoose to stay at home andlook after for their families
The Number of people atschool
The number of people infurther education
The number of people whoare retired
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Production FunctionQ = f (K, L) Demand for Labour : DerivedDemand
The substitution Effect of
Labour : if the wage rate falls,employers will employ morelabour because it is cheaper
The Income Effect of Labour:
if the wage rate falls,employers will employ morelabour because it leaves morebudget to spend
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Wage Rate Determination In the
Labour Market Demand
Supply
Equilibrium Wage Rate Disequilibrium Wage Rate
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Equilibrium Wage Rates Is the wage rate at which the quantity of labour
demanded equals the quantity of labour supplied
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Disequilibrium Wage RateThe market wage is greaterthan the equilibrium wage
The market wage is lesserthan the equilibrium wage
Reasons ( excess supply of labour,workers will be unemployed
because of the excess number ofworkers thus wage rate will fall)
Workers realizing they are ormay become unemployed, willaccept lower wage rates, in aneffort to make their servicesmore attractive to employers
Employers, realizing there areunemployed workers, will offerto employ workers at a lowerwage rate
Reasons ( excess supply of labour,workers will be highly sought
after, because there is shortage ofworkers)
1. Employers finding themselvesunable to employ as many
workers as they would like, willoffer to employ workers at
higher wage rates in an attemptto attract more workers
2. Workers, realizing they arebeing sought after by employees,
will begin to ask for higher wagerates for their services
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The market wage is lesser than theequilibrium wage
Only when the market wagerate equals to the equilibrium
wage rate is there neither
excess demand for labour norexcess supply of labour.Hence there are neitherunemployed workers orshortage of workers
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LABOR FORCE and
UNEMPLOYMENT Labour Force-Population 15 years old and
over who contributes to the production ofgoods and services in the country
Includes either employed or unemployed;and those who are neither employed orunemployed
Participation Rate-The percentage of theentire labour force population that makesup the labour force
Participation rate = Labour Force x
100Labour Force Population
Ex. In 1993 labour force was 13.946 millionand the labour force population was 21.392million
65.2% = 13 946 000 x 100
21 392 000
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The Official UnemploymentRate- The number ofunemployed people in thelabour force as a percentage ofthe entire labour force
Ex. The 1993 Labour force of
13.946 people was composed of12.383 million people who wereemployed and 1.562 millionpeople who were not.
Unemployment Rate = UELFR/LabourForce x 100
11.2%= 1 562 000 x 10013 946 000
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Drawbacks
Because of how the unemployment rate is calculated, it mayunderestimate or overstate the true level of unemployment in theeconomy. Critics point to the factors: underemployment, discouragedworkers, and dishonesty.
Underemployment-The problem of workers being underutilized,either as part-time workers or by working at jobs not appropriate totheir skills or education. It is sometimes argued that the official rateunderstates unemployment by ignoring the underplayed workers.
Discouraged Workers- -Unemployment statistics do not take into account unemployed people
who have given up looking for work. Dishonesty-Some people responding to Labour Statistics market
survey may state that they are actively looking for work, when theyreally are not. This makes it possible for the official rate to overstateemployment
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UNEMPLOYMENT :
ISSUES, DIMENSIONS, AND ANALYSES
UNEMPLOYMENT An involuntary idleness
on the part of those whohave failed to find
employment or who havelost their latest jobs, butare able to work, and arelooking for work
Types of Unemployment 1. Normal Unemployment- Unemployment
due to low or no demand for workers. 2. Frictional Unemployment-
Unemployment due to being temporarilybetween jobs or looking for a first job. It is apermanent feature of labour markets,represents about 3% of the labour force at alltimes.
3. Structural Unemployment-Unemployment due to a mismatch betweenpeople and jobs. This type of unemploymentoccurs because of gradual changes in theeconomy. Long term adjustments in what,how, and where products are produced causesuch unemployment.
4. Technological Unemployment-Unemployment due to technology 5. Cyclical Unemployment-Unemployment
due to the ups and downs of economies andbusinesses, causing unemployment to rise andfall.
6. Seasonal Unemployment- Unemploymentdue to the seasonal nature of someoccupations and industries
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Effects of Unemployment
It creates depression andpsychological effect on the partof the male worker
Loss of wages and temporary orpermanently lowered plane of
living Women and children enter into
the labor force in the desire tohelp the family
In many instances it breedsdiscontent, radicalism andgeneral unrest of the existing
economic order Unemployment creates
unemployment It creates more social problems
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Full Employment It is the highest reasonable expectation of employment for the
economy as a whole, as is defined in terms of the Natural EmploymentRate
Natural Employment Rate-which is the unemployment rate that
defines full employment. Includes frictional unemployment, buttraditionally excludes cyclical and seasonal unemployment.
Increases over the past few decades in both the actual and the naturalunemployment rates represent worrisome trends, which can be
explained by the following factors: 1. Structural Change 2. Changing Participation Rates 3. Minimum Wage
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Five Forms of Labor Underutilization
Open Unemployment - both voluntary & involuntary Underemploymentpeople working less than they
would like to work
Visibly Active but underutilized-people who would notnormally be classified as either employed orunderemployed Disguised underemployment Hidden unemployment
Premature retirement The impaired- people who may work full time but whose
intensity of effort is impaired by malnutrition The unproductive
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Philippines April 2012 1/ April 2011
Population 15
years and over (in'000) 62,842 61,778
Labor ForceParticipation Rate(%)
64.7 64.2
EmploymentRate (%) 93.1 92.8
UnemploymentRate (%)
6.9 7.2
Underemployment Rate (%)
19.3 19.4
EMPLOYMENT RATE in APRIL 2012 is ESTIMATED
at 93.1 PERCENT
Results from the April 2012 Labor Force Survey (LFS)Notes: 1/Estimates for April 2012 are preliminary and may change2/Population 15 years and over is from the 2000 Census-based
population projections.
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3
Rates of Labor Force, Employment, Unemployment and Underemployment, by Region: January 2010
(In percent)
=====================================================================================================
Labor Force | | | Under-
Region Participation | Employment | Unemployment | employment
Rate | Rate | Rate | Rate
-----------------------------------------------------------------------------------------------------Philippines 64.5 92.7 7.3 19.7National Capital Region 62.8 89.2 10.8 10.9Cordillera Administrative Region 68.0 95.0 5.0 17.3
I -Ilocos Region 60.9 92.1 7.9 14.8II -Cagayan Valley 67.1 97.0 3.0 17.0III -Central Luzon 61.3 91.0 9.0 8.7IVA -CALABARZON 63.8 90.5 9.5 16.9
IVB -MIMAROPA 68.7 95.8 4.2 22.4
V -Bicol Region 64.6 94.9 5.1 36.8
VI -Western Visayas 66.1 94.0 6.0 28.6VII -Central Visayas 64.9 91.9 8.1 18.1
VIII -Eastern Visayas 64.8 93.6 6.4 22.8IX -Zamboanga Peninsula 68.3 95.3 4.7 26.0
X -Northern Mindanao 70.2 94.8 5.2 26.4XI -Davao Region 65.1 94.0 6.0 22.8XII -SOCCSKSARGEN 67.7 94.8 5.2 26.7
Caraga 64.9 91.9 8.1 28.0
Autonomous Region in Muslim Mindanao 59.2 96.0 4.0 16.6
-----------------------------------------------------------------------------------------------------Notes: Estimates for January 2010 are preliminary and may change.
Figures were estimated using the 2000 Census-based Population Projections.Source: National Statistics Office, January 2010 Labor Force Survey
Page last updated:March 16, 2010
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A general increase in the price of goodsand services in an entire economy over
time.
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TYPES OF INFLATION
1. DEMAND PULL INFLATION
2. COST PUSH INFLATION
3. STRUCTURAL INFLATION
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formula for INFLATION RATE
Yearly = [ cpi current year/cpi previous year-1]100
Monthly=[ cpi current mo/cpi previous mo-1]100
Quarterly= [ cpi qtr of current yr /cpi previous ofsame qtr of previous yr-1]100
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EFFECTS OF INFLATION
1. It will result to hoarding or illegal storing ofproduct
2. It will aggravate poverty conditions
3. Investment is very risky
4. Lenders of Money or creditors lose duringinflation while debtors benefit from it because of
the decrease in the purchasing power of peso
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Inflations Effect. If household but Inflation at a higher rate, then households
purchasing power . If household and inflation rate proportionally, then
household maintains purchasing power. Cost of living adjustment clauses (COLA)Provisions for
income adjustment to accommodate changes in price level,which are included in wage contracts.
Fully Indexed IncomesNominal incomes that automaticallyincreases by the rate of inflation. Partially Indexed IncomesNominal incomes that increases by
less than the rate if inflation. Fixed IncomesNominal incomes that remain fixed at some
dollar amount regardless of the rate of inf lation. Nominal Interest rate: The interest rate expressed in moneyterms.
Real interest rate: The nominal interest rate minus the rate ifinflation.
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INFLATION RATES
(2000 = 100)
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Average 6.7 7.5 5.6 9.3 5.9 4 6.8 3 3.5 6 7.6 6.2 2.8 9.3 3.2 3.8 4.4
January 5.8 8.5 5.6 6.5 10.5 2.2 7.5 3.7 2.8 4.1 8.4 6.7 3.9 4.9 7.1 4.3 3.6
February 5 8.7 5.3 7.6 9 2.5 7.4 3.2 3.2 4 8.5 7.6 2.6 5.4 7.3 4.2 4.3
March 5.6 8.7 5.4 8.1 7.7 2.8 7.6 3.5 3 4.2 8.5 7.6 2.2 6.4 6.4 4.4 4.3
April 5.6 8.9 5.1 8.3 7.1 3.3 7.4 3.5 3.3 4.3 8.5 7.1 2.3 8.3 4.8 4.5 4.3
May 6.3 8 5 9.7 5.8 3.4 7.4 3.5 3.4 4.5 8.5 6.9 2.4 9.5 3.3 4.3 4.5
June 6.6 8 5.6 10 4.9 3.8 7.2 2.9 3.9 5.4 7.6 6.7 2.3 11.4 1.5 4 4.6
July 6.4 7.8 5.4 10.1 4.8 4.2 7.4 2.6 3.7 6.6 7.1 6.4 2.6 12.3 0.2 3.9 4.6
August 6.8 7.3 5.3 9.9 4.7 4.4 7 3 3.4 6.8 7.2 6.3 2.4 12.4 0.1 4.1 4.3
September 8.8 5.3 5.8 9.9 4.9 4.2 6.8 2.7 3.6 7.2 7 5.7 2.7 11.8 0.6 3.5 4.6
October 8.8 5.4 5.9 9.8 5 4.6 6.1 2.6 3.6 7.7 7 5.4 2.7 11.2 1.6 2.8 5.3
November 8.1 6.5 6.4 10.7 3.6 5.7 5 2.4 3.9 8.2 7.1 4.6 3.2 9.9 2.8 3.1 4.7
December 8.1 6.9 6.2 10 3.9 6.5 4.5 2.5 3.9 8.6 6.7 4.3 3.9 8 4.3 3.1 4
Note: Monthly inflation rates when averaged do not tally with the annual inflation rates computed from the
Consumer Price Index in the Philippines.
Starting January 2012, National Statistics Office (NSO) will no longer issue the 2000 based Consumer
Price Index and Inflation Rates.
Source: National Statistics Office
(NSO)
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ECONOMIC POLICY TOOLS Monetary Policy
Fiscal Policy
Trade Policy
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MONETARY POLICY TOOLSReserve Ratio
(RR)
RediscountingRate (ReR)
Open MarketOperation
Low Ms; Inc Ms= Dec.RR
High Ms; Dec. Ms=IncRR
Low Ms; Inc Ms= Dec.ReR
High Ms; Dec. Ms=IncReR
Low Ms; Inc Ms= Sellbond
High Ms; Dec. Ms=Buybond
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FISCAL POLICY TOOLS
Borrowings
Spending
InternationalFinancial Institution
Other Countries
Local
Low Ms; Inc Ms=Inc. Borrowings
Infrastructure Porjects
Low Ms; Inc Ms= Inc.Spendings
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TRADE POLICY TOOLSPromoteExport
Low Ms;Inc Ms
IMPORTTOLERANCE
High Ms;Dec. Ms