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Labor Economics: Job Search Essay

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Updated: May 24th, 2021

Job Search: External and Internal

There are two major ways available for job seekers when they hunt for jobs. They either hunt for jobs externally, meaning they search for jobs outside the company that they currently work for, or they look for jobs within the said company. The external job search could occur while they are still working in the said organization. They could also conduct an external job search after they resigned or after they were fired from their current job. The internal job search, on the other hand, is only available to current employees in the said company.

The external job search process has been radically altered after the emergence of Information Technology. In the past, job hunters had to pound the pavement, personally submit their resumes, or deliver them through the mail. In recent decades, job applicants could send their applications electronically, making job-hunting a much easier task. The accelerated process provides economic benefits for employees and employers as unemployment rates could be reduced at a faster rate. In the case of employers, increased productivity is the result of creating a better match of available jobs for job seekers.

Aside from major changes in the job-hunting process, there is also another phenomenon that businessmen and corporate leaders must carefully monitor. It is the phenomenon described as shortened job tenure. This emerging trend could be partially explained by the shift from manufacturing jobs to service sector jobs. It is not clear why there is a lower tenure for jobs in the service sector. But there is a reason why there is reduced job tenure in manufacturing jobs. It is due to the replacement of unskilled laborers with computers and precision machines.

There is another element that affects job tenure and job hunting; it is the internal labor market. Two things characterize the internal labor market. First, a worker joins a company and is assigned to work in the least skilled port-of-entry job. Second, the said employee is positioned in the lowest rung of the job ladder or mobility chain. As a result, there is the incentive to move up and vacate the current position occupied. However, the movement of the workers up and down the job ladder is based on administrative rules and procedures. In other words, the worker cannot apply for that position like an outsider. In most cases, he or she must be promoted to a higher position in order to move up the mobility chain.

The internal job market is perpetuated by two factors: the need for specific skills and the need to retain skilled workers. In order to train workers, employers must make a substantial investment. Therefore, it is prudent to protect the said investment.

When the employer succeeds in retaining the service of a skilled worker, the employer experiences greater returns on investment. At the same time, savings are realized because there is no need to train a new batch of workers. Furthermore, employers could benefit from an internal labor market because they have a clear understanding of what their workers are capable of. Therefore, there is no need to go through the trial and error process of hiring people without an idea of what they know or if they are a perfect fit for the company.

The workers also benefit from such an arrangement because they are able to enjoy job security. There is also the added advantage of built-in training and promotion opportunities. It can be argued that an employee takes a risk if he resigns from his current position in order to pursue a higher paying job. Thus, if there is an opportunity to increase income level without having to leave the current employer, then that would be an advantage.

There is one major issue with the internal labor market, and it is on the question of efficiency. The issue stems from the argument that workers are promoted based on seniority and administrative rules but not on the productivity of the employee. At the same time, the workers are shielded from competition, and their salaries may not be commensurate to the contribution they make to the company. Those who believe in the efficiency of the internal labor market pointed out that qualified workers are retained, and they become the senior employers. Furthermore, senior workers usually receive more than their marginal revenue products while younger workers are paid less than their marginal revenue products. They made the counterargument that this serves as a motivational tool for younger workers to work harder so that the firm will retain their services.

The Distribution of Personal Earnings

There are two ways to illustrate the degree of inequality in personal earnings among full-time workers in the United States. The first method that could be utilized to illustrate inequality is through the use of a histogram wherein one could see an absolute frequency distribution. The second method is through a Lorenz curve.

With regards to the histogram, it is important to focus on the mean, median, and mode. The mean represents the average value after dividing the total earnings by the number of workers. The mode represents the value that occurred with the greatest frequency. The median is the value at the midpoint level.

It is therefore important to point out that the median value indicated that fifty percent of the full-time workers received more than the median amount of $35,000 in 2007, while the rest earned less. At the same time, it was revealed that most of the workers earned $20,000 to $24,999 in the same year. However, the mean was pegged at $46,179. Based on these figures, it could be argued that there were a smaller number of full-time workers that earned significantly higher than the average worker.

The Distribution of Personal Earnings
Fig.1. Frequency Distribution.

It has been pointed out that human characteristics such as intelligence, physical strength, motivation, and determination are the prerequisites to higher income. However, it was also made clear that these characteristics are evenly distributed. Therefore, there should be a great number of people with higher income potential. But the reality is that there are many people who struggle because of inequality in earning capability. There were two major reasons given why inequality exists in society. The first major reason is formal education. The second major reason is on-the-job training.

 The Lorenz Curve.
Fig. 2. The Lorenz Curve.

There is no need to elaborate on the fact that those with doctorate degrees earn more than those with bachelor’s degrees. The same thing can be said about the fact that those with a high school diploma have higher earning potential compared to those who have less than 12 years of basic education.

The second major factor that influenced income distribution is on-the-job training. There are certain firms that requireth their top employees to work on special projects. Therefore, it is important to get the necessary training needed for the job. There are many firms that require workers to study and implement specific procedures based on the nature of the work environment.

Aside from training and education, there are certain things that people must consider in order to increase their earning potential. For example, workers must realize that when a person is much older, they enjoy a higher income rate. There are also other factors that could explain the rise of income inequality among full-time workers in the United States. The first reason is deindustrialization because there was a shift towards the service sector.

The second major reason for pay inequality was the decline of unionism. Therefore, workers would have a hard time negotiating with management when it is time to increase their wages. The decline of unionism means that workers possess little leverage in order to triumph at the negotiation table.

The third major factor was an increase in the demand for skilled workers. The ability to acquire a particular skill requires a great deal of training and apprenticeship. The fourth major factor is demographic changes. It was important to point out that there is no single and simplified explanation as to why there are those who live in palatial mansions while there are others who had to be contented with limited resources due to earning capability.

Labor Productivity: Wages, Prices, and Employment

Productivity is based on a simple framework – it is a measure of the outcome, the unit of output that was obtained after a unit of input was introduced to the system. With regards to the U.S. economy, the Bureau of Labor Statistics provides information on labor productivity.

It was made clear that the U.S. economy experienced improved levels of labor productivity. There were several reasons that could explain the upward trend in productivity. The primary explanation as to the positive results of labor productivity was linked to improving labor quality.

There were several factors that contributed to improvements in the labor quality, and these are listed as follows: 1) Education; 2) Training; 3) health and vitality; and 4) age-gender composition. Therefore, a highly educated workforce is more productive than those with lower educational attainment. In the same manner, a well-equipped and highly trained worker is more efficient than those who did not make investments in any self-improvement task.

In order to increase productivity, workers must also have access to capital. The manager must continually analyze the implications of the capital-labor ratio. In the case of the U.S. economy, the workers have greater access to capital goods and used them to produce different types of output.

It is not only the quality of the workers and access to capital goods that could explain the increased productivity in this country. The third reason was attributed to increased efficiency in the use of labor and capital. The efficient use of labor and capital was also linked to 1) technological progress; 2) a greater degree of specialization; 3) reallocation of labor to more productive use, and 4) changes in a society’s institutional, cultural and environmental setting.

Progress in technology was not only limited to improvements in equipment design but also improvements when it comes to the development of systems. Thus, the improvements made on organizational management, as well as the more effective use of human resources and capital, contributed to the significant increase in productivity. For example, many companies were able to use automated systems to minimize waste while increasing the output capabilities of the firm.

Production was made more efficient by economies of scale. In other words, business leaders were able to capitalize on the realization that the more products that were produced, the lower the cost of production.

The reallocation of labor was also a major factor in increased labor productivity. The best example would be the reallocation of labor from agriculture to the manufacturing sector. In agriculture, a farmhand could only expect an average gain no matter how many hours were spent on the farm. But when it comes to the application of manufacturing technology, it was discovered that people produce more goods per hour compared to the inefficient output in most farms. When farmworkers were reallocated to an efficient environment, it did not take long before the workers were able to produce a higher level of productivity.

Aside from internal changes and controls, there are external factors that contributed to labor productivity. These are the cultural values of the society as well as the nature of its institutions. In other words, politicians and business leaders could collaborate in order to improve business processes.

It has to be pointed out that productivity increase does not always occur on a regular basis. Labor productivity behaves in a cyclical pattern. There is also a phenomenon called a recession or economic downturn. When the economy is in a recession, the efficient systems described a while ago could not be utilized because of one primary driving force, and that is the law of supply and demand. In a recession, people are not buying goods. Thus, even if the manufacturing process has been radically altered to demonstrate efficient production, the factory remains closed because there is no demand for the product. Nevertheless, the overall trend points to higher labor productivity because the rate of productivity picks up after a recession.

Another area that requires examination is the relationship between productivity and employment. There are those who contend that workers are not encouraged to increase productivity because success in this area could endanger their job security. The basis for such thinking is rooted in the defective analysis of the implications of increased productivity.

The error in thinking could also be attributed to the success of automated systems wherein machines had replaced humans. However, there are areas of production that robots and machines are unable to accomplish. Going back to the relationship between productivity and employment, it must be pointed out that the company would not reduce the number of workers after experiencing significant levels of productivity because increased labor productivity translates to greater demand for the product. The increased demand for the product could be due to availability and reduced price.

It is important to highlight once again the impact of Information Technology on the improvement in labor productivity. Technological advancements enabled businessmen to utilize resources more efficiently. At the same time, companies were able to reduce waste and improve the quality of the goods manufactured.

Employment and Unemployment

It is imperative to constantly monitor the unemployment rate of a country. The unemployment rate could easily indicate that an economic recession has impacted the region. Unemployment is always considered a negative force within a national economy. There is no need to elaborate on the sufferings caused by parents who are unable to provide for their children because they are unemployed. Therefore, it is the duty of public servants, national leaders, and businessmen to work together in order to counteract the impact of a recession.

Nobody wants to be unemployed. However, unemployment is not always a bad thing. Voluntary unemployment could boost the value of the job seeker. However, national leaders and businessmen must work hard to prevent the occurrence of structural unemployment. Frictional unemployment could last for only a few weeks or months, but structural unemployment may last for many years, and in many cases, the workers may never be able to work again.

Structural unemployment is an important subject matter to discuss, and therefore, it is best to point out the root cause of the problem. It was revealed that the unemployment rate rises when there is a mismatch between the skills needed and the skills possessed by job seekers. An essential cause of structural unemployment that has to be investigated could be attributed to the mismatch of geographic location between job openings and job seeking.

In the decade of the 90s, American workers in the textile industry were unemployed when their respective companies needed machines to remain competitive. These workers need an upgrade because there are other job openings. However, these new positions require a different skill set. Since the workers did not invest in self-improvement initiatives, they could not be transferred to a different position.

Declining industries and the impact of imports are two serious forces to consider when it comes to structural unemployment. Another problematic area was outsourcing jobs abroad. In the past, outsourcing jobs to India and Asia were only limited to mundane and inefficient task structures. However, companies have learned to use the cost-efficient system of outsourcing.

Imports and outsourcing are two significant forces that continue to impact the U.S. labor market. There is no use in complaining against the negative impact of corporate strategies that leads to outsourcing and importation. The best thing to do is to prepare for the predictable outcomes of the said economic forces. For example, there are jobs that could never be outsourced. It is therefore critical to focus on those jobs. Workers must focus on jobs that could not be outsourced. If there is a need to make a significant investment in higher education, then money must be spent wisely on careers that could not be affected by outsourcing.

It is interesting to point out that the factors that enabled job seekers to find the ideal job were also the same factors that would have prevented structural unemployment. These factors are higher education and flexibility. Higher education does not only enable workers to land a job that they like; education also ensures that there are plenty of options available to the job seeker. Nevertheless, higher education is not enough to stave off unemployment. The job applicant must be flexible and accept job opportunities that may have been less ideal a few years ago.

The most important thing that the U.S. government could do is to reduce unemployment. The first thing that the government must do is to exercise prudent fiscal policy management. It is imperative that the government must work hard to lessen the negative impact of certain tax policies and other laws that could affect the unemployment rate.

If the government increases its drive to collect more taxes, the move could be interpreted as a major blow to the company’s productivity, and therefore the corporate leaders may issue a moratorium on hiring new employees. Government actions could also lead to adjustments that could affect the morale of the workers. For example, the decision not to increase wages may compel workers to resign and look for alternative sources of income.

On the other hand, the government may manipulate other aspects of the monetary policies, and the end result could be additional access to more funds. As a result, the company could afford to expand business operations, and therefore, it could lead to the hiring of additional workers.

Productivity is tied to demand. If the government could help establish more ideal scenarios for growth, then the companies may experience greater demand from the market. For example, a low tax rate may affect the prices of goods. The lower-priced goods could lead to increase demand. The implication is that the need for more products requires the expansion of the workforce.

The need to increase efficiency and productivity must be sustained. It is not prudent to simply create ideal scenarios that could lead to greater demand for goods and services. It is also imperative that the government lay down policies and invests in infrastructure that could help sustain the upward trend in productivity. Therefore, the government must be mindful of cash reserves and their ability to pay obligations. Therefore, the government must be mindful of striking the correct balance between the need to assist companies in reaching high levels of productivity and at the same time maintain the correct environment so that efficiency and productivity could be sustained. It is also important to point out that the government must focus on the impact of fiscal policies. It is imperative that the positive outcome must not lead to inflation.

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