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Labor Economics

Principles in Practice

Second Edition

Kenneth McLaughlin

Publication Date - 03 December 2018

ISBN: 9780190856991

560 pages
7-1/2 x 9-1/4 inches

In Stock

Introduces students to the principles of labor economics by combining analysis of real data with concrete examples, thought-provoking applications, and plenty of practice


Labor markets affect us all in important ways, but most books for this course take a very scholarly and theoretical approach to the subject. Connecting the theory to real life is essential. McLaughlin's text--the first in this market to apply a more pedagogical approach to the study of labor economics--makes that leap for students.

New to this Edition

  • Additional data is included throughout to further develop students' empirical skills
  • New models use simple numerical exercises and specific examples to encourage discussion and help students work out practice problems
  • A new, separate section on the minimum wage features updated and additional material (Section 2.2)
  • Content on taxes, subsidies, and employer mandates has been expanded into its own complete section (Section 2.3)
  • Chapter 10 includes a new full section on technology's long-term impact on the job economy (Section 10.4)
  • Chapter 12 now features an additional section on job vacancies and unemployment (Section 12.5)
  • New homework problems reflect additions to the text; all theory graphs have been revised; and all data graphs have been updated


  • Focuses on the core principles of labor economics to give students a well-balanced theoretical and empirical introduction to the field.
  • Weaves data into the narrative rather than relegating evidence to references in footnotes, presenting patterns and interpreting evidence from the Current Population Survey (CPS) and other interesting data sets.
  • Incorporates unique practice-along-the-way questions and end-of-chapter problems for continuous self-study, review, and homework.
  • Anchors the tightly integrated package of student and instructor resources, all of which are written by the author.

About the Author(s)

Ken McLaughlin is Associate Professor of Labor Economics and Applied Microeconomics at City University of New York, Hunter College.


"Labor Economics maximizes student understanding because it is written at the perfect level, not bogged down in details that students will soon forget or cannot comprehend. It also has the best supplements of any labor economics textbook." --David Kalist, Shippensburg University

"McLaughlin emphasizes how labor economists are essentially scientists trying to derive simple models that describe and predict human behavior. The text walks students clearly through the description of each model and gives examples of how those models can be applied and tested." --Patten Mahler, Centre College

Table of Contents

    Preface to the Student
    Preface to the Instructor

    Part One
    1. Introduction to Labor Economics
    1.1 Tipping Busboys
    1.2 Labor Economics
    Key Principles
    1.3 Economic Detection
    Arguments and Explanations
    Standards for Evaluating Hypotheses
    Scientific Method
    1.4 Data
    Current Population Survey (CPS)
    Current Employment Survey (CES) and Other Datasets
    Occupation Averages in the CPS
    1.5 Empirical Methods
    Causation and Instrumental Variables
    Before-and-After Comparison with and without a Control Group
    Confidence with Caution
    1.6 For Your Toolbox
    Slopes, Marginal Changes, and Elasticities
    Random Variables and Distributions
    Adjusting for Inflation

    2. Labor Markets
    2.1 Competitive Labor Market
    Demand for Nurses
    Supply of Nurses
    Equilibrium in the Market for Nurses
    Shifting the Equilibrium
    2.2 Minimum Wage
    Effect of a Minimum Wage on Employment
    Preliminary Evidence
    New Jersey Raises Its Minimum Wage
    Two Rounds of Federal Minimum Wage Hikes
    2.3 Taxes, Subsidies, and Employer Mandates
    Employment Taxes
    Wage Subsidy
    Employer Mandate
    2.4 Multiple Competitive Labor Markets
    Multi-Market Equilibrium and Migration
    Minimum Wage with Partial Coverage
    2.5 Monopsony
    Monopsony Model
    Application: Baseball's Reserve System

    3. Labor Supply
    3.1 Motivating Evidence
    Participation and Employment Rates
    Weekly Hours of Work
    3.2 Hours of Work
    Consumption-Leisure Choice
    Changing Nonlabor Income
    Changing the Wage Rate
    Labor Supply Curve
    3.3 Applications
    Taxing Labor Income
    Incredible Shrinking Workweek
    3.4 Whether to Work
    Reservation Wage
    Application: Commuting and Other Costs of Work
    Application: Cash Grants and Income Guarantees
    3.5 Family Labor Supply and Home Production
    Family Labor Supply
    Home Production
    3.6 Market Labor Supply

    4. Labor Demand

    4.1 Short-Run Labor Demand
    Production Function and the Total-Product Curve
    Average and Marginal Products of Labor
    Profit-Maximizing Choice of Employment
    Short-Run Labor Demand Curve
    Factors that Shift Labor Demand in the Short Run
    Payroll Tax and Short-Run Labor Demand
    4.2 Long-Run Labor Demand
    Production Function and Isoquant Curves
    Cost Function and Isocost Lines
    Cost-Minimizing Mix of Labor and Capital
    Application: Cross-Country Differences in Capital Intensity
    Profit-Maximizing Choice of Labor and Capital
    Long-Run Labor Demand Curve
    Factors that Shift Labor Demand in the Long Run
    Application: Short-Run v. Long-Run Effects of the Minimum Wage
    4.3 Market Labor Demand
    Application: Demand for Palestinian Labor in Israel
    Equilibrium Price Effects and Marshall's Rules

    Part Two
    5. Job Attributes
    5.1 Market for Work on Dirty Jobs
    Supply of Labor to Dirty Jobs
    Demand for Labor on Dirty Jobs
    Equilibrium Wage Premium on Dirty Jobs
    5.2 Model of Compensating Wage Differentials
    Wage-Dirt Curve
    Worker's Job Choice
    Firm's Job Choice
    Equilibrium Compensating Wage Differential
    Application: Occupational Safety Regulation
    Application: Value of Life
    5.3 Workday and Job Choice
    Employer's Interest in the Length of the Workday
    Compensating Wage Differentials for Long Workdays
    5.4 Employee Benefits
    Composition of Pay
    Taxing Wages But Not Benefits
    But Cushy Jobs Pay More

    6. Schooling
    6.1 Schooling as an Investment in Human Capital
    Wage Profiles and the Wage-Schooling Curve
    Wealth and Iso-Wealth Curves
    Wealth-Maximizing Schooling Choice and the Demand for Schooling
    Equilibrium Wage-Schooling Curve
    6.2 Estimating the Rate of Return to Schooling
    Rate of Return to Schooling Across Occupations
    Differences in the Interest Rate
    Tuition, Death, and Taxes
    Differences in Ability
    Avoiding Ability Bias
    6.3 Schooling as a Signal of Ability
    Signaling Model of Schooling
    Signaling or Human Capital?
    6.4 Application: Schooling and the Workweek

    7. Training, Turnover, and Migration

    7.1 General Training
    On-the-Job Training as an Investment
    Productivity and Wage Profiles
    Who Pays for General Training?
    Wages and Work Experience
    Labor Supply over the Life Cycle
    7.2 Applications
    Military Training of Commercial Pilots
    Baseball's Reserve System
    7.3 Specific Training
    Who Pays for Specific Training?
    Specific Training and Turnover
    7.4 Matching Models of Turnover
    Searching on the Job
    Learning the Value of the Match
    7.5 Migration
    Migration as an Investment in Human Capital
    Application: Indentured Servitude
    Selection on Skill
    Effects of Immigration in the Short Run and Long Run
    Application: Mariel Boatlift

    8. Discrimination
    8.1 Measuring Wage Gaps
    Wage Gaps by Sex, Race, and Ethnicity
    Standardized Comparison
    Accounting for Changes in Wage Gaps
    Wage Gaps by Sex Across Countries
    Wages and the Sex and Race Compositions of Occupations
    8.2 Identifying the Effects of Discrimination
    Omitted Skill Variables
    Control Group of Nondiscriminators
    Test Scores and the Long Shadow of Discrimination in Childhood
    Discrimination in Hiring: Audit Studies and Blind Auditions
    Career Wage Ratios and Family Demands
    8.3 Modeling Discrimination
    Employer Discrimination
    Employee Discrimination
    Customer Discrimination
    Monopsony Discrimination
    Statistical Discrimination
    8.4 Can Discrimination Survive in the Long Run?
    Paying a Price to Discriminate
    Institutionalized Discrimination
    8.5 U.S. Anti-Discrimination Policy

    9. Unions
    9.1 Historical Context
    Union Membership
    Union Wage Premium
    9.2 Models of Unions
    Union Bargaining with a Monopsony Employer
    Monopoly Union
    Efficient-Contracting Union
    9.3 Applications
    Comparing Union Models
    Recipe for a Successful Monopoly Union
    Effects of Unions on Nonunion Wages

    10. Wage Inequality
    10.1 Measuring the Distribution of Wages
    Application: Wage Inequality Across Occupations
    10.2 Economic Models of Wage Inequality
    Job Assignment in Hierarchies
    10.3 Application: Increasing Wage Inequality
    Increasing Return to Skills
    Skill-Biased Innovations and the Baby Boomers
    International Trade and Immigration

    Part Three
    11. Compensation Strategies
    11.1 Introduction to Compensation
    Production Environment
    Efficient Effort
    Profit Sharing and Shirking
    11.2 Performance Pay
    Personal Performance
    Relative Performance
    Application: Self-Employment and Entrepreneurship
    11.3 Efficiency Wage and the Threat of Dismissal
    Efficiency Wage
    Threat of Dismissal
    Application: Mandatory Retirement
    11.4 Compensation of Chief Executive Officers
    Level of CEO Pay
    Sensitivity of CEO Pay to Firm Performance
    Application: Personal Use of the Corporate Jet

    12. Unemployment
    12.1 Disequilibrium Unemployment
    Minimum Wage and Efficiency Wage
    12.2 Steady-State Unemployment
    Flows Between Labor-Market States
    Distribution of Lengths of Spells of Unemployment
    12.3 Job Search
    Reservation Wage
    Career Jobs, Low Interest Rates, and Being Well-Connected
    12.4 Applications
    Unemployment Insurance
    European Unemployment
    12.5 Unemployment in the Macroeconomy
    Inflation and Unemployment
    Phillips Curves in a Model of Aggregate Fluctuations
    Job Vacancies and Unemployment

    Answers to the Practice Questions

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