page_title: Labour economics
section_title: The macroeconomics of labour markets
hierarchical_section_title: Labour economics / The macroeconomics of labour markets
caption_attribution_description: English: The Job Advertisement Board in Shenzhen. 日本語: 深圳の求人広告板 中文: 招聘广告板，在深圳市宝安区
context_page_description: Labour economics seeks to understand the functioning and dynamics of the markets for wage labour. Labour is a commodity that supplied by labourers in exchange for a wage paid by demanding firms.
  Labour markets or job markets function through the interaction of workers and employers. Labour economics looks at the suppliers of labour services and the demanders of labour services, and attempts to understand the resulting pattern of wages, employment, and income. Labour markets are normally geographically bounded, but the rise of the internet has brought about a 'planetary labour market' in some sectors.
  Labour is a measure of the work done by human beings. It is conventionally contrasted with such other factors of production as land and capital. Some theories focus on human capital. Labour is unique to study because it is a special type of good that cannot be separated from the owner. A labour market is also different from other markets in that workers are the suppliers and firms are the demanders.
context_section_description: The Labour force (LF) is defined as the number of people of working age, who are either employed or actively looking for work (unemployed). The labour force participation rate (LFPR) is the number of people in the labour force divided by the size of the adult civilian non-institutional population (or by the population of working age that is not institutionalized), LFPR = LF/Population.
  The non-labour force includes those who are not looking for work, those who are institutionalized (such as in prisons or psychiatric wards), stay-at-home spouses, children not of working age, and those serving in the military. The unemployment level is defined as the labour force minus the number of people currently employed. The unemployment rate is defined as the level of unemployment divided by the labour force. The employment rate is defined as the number of people currently employed divided by the adult population (or by the population of working age).  In these statistics, self-employed people are counted as employed.
  The skills required in a labour force can vary from individual to individual, as well as from firm to firm. Some firms have specific skills they are interested in, limiting the labour force to certain criteria. A firm requiring specific skills will help determine the size of the market.
  Variables like employment level, unemployment level, labour force, and unfilled vacancies are called stock variables because they measure a quantity at a point in time. They can be contrasted with flow variables which measure a quantity over a duration of time. Changes in the labour force are due to flow variables such as natural population growth, net immigration, new entrants, and retirements.  Changes in unemployment depend on inflows (non-employed people starting to look for jobs and employed people who lose their jobs that are looking for new ones) and outflows (people who find new employment and people who stop looking for employment). When looking at the overall macroeconomy, several types of unemployment have been identified, which can be separated into two categories of natural and unnatural unemployment.
  Natural Unemployment
  Frictional unemployment – This reflects the fact that it takes time for people to find and settle into new jobs that they feel are appropriate for them and their skill set. Technological advancement often reduces frictional unemployment; for example, internet search engines have reduced the cost and time associated with locating employment or personnel selection.
  Structural unemployment – the number of jobs available in an industry are not sufficient enough to provide jobs to all persons who are interested in working or qualified to work in that industry. This can be due to the changes in industries prevalent in a country or because wages for the industry are too high, causing people to want to supply their labour to that industry.
  Natural rate of unemployment (also known as full employment) – This is the summation of frictional and structural unemployment, that excludes cyclical contributions of unemployment (e.g. recessions) and seasonal unemployment. It is the lowest rate of unemployment that a stable economy can expect to achieve, given that some frictional and structural unemployment is inevitable. Economists do not agree on the level of the natural rate, with estimates ranging from 1% to 5%, or on its meaning – some associate it with "non-accelerating inflation".  The estimated rate varies between countries and across time.
  Unnatural Unemployment
  Demand deficient unemployment (also known as cyclical unemployment) – In Keynesian economics, any level of unemployment beyond the natural rate is probably due to insufficient goods demand in the overall economy. During a recession, aggregate expenditure is deficient causing the underutilisation of inputs (including labour). Aggregate expenditure (AE) can be increased, according to Keynes, by increasing consumption spending (C), increasing investment spending (I), increasing government spending (G), or increasing the net of exports minus imports (X−M), since 
caption: Job advertisement board in Shenzhen.
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