Labor Supply and Demand in Macroeconomics: Theoretical Considerations and Calculations

Abstract

The paper proposes and tests a method for constructing modified functions of labor demand and supply, designed for the analysis of the economy at the macrolevel. Methodological difficulties in constructing these functions are determined by the fact that when considering the labor market at the macro level, in principle, there is no possibility to operate with a series of observations related to a single point in time. Due to this circumstance, it is proposed to define the functions under consideration as regression equations constructed on the basis of dynamic series. The argument of both functions is the average monthly real accrued salary. The value of the supply function is the level of economic activity of the population. This indicator can be interpreted as the amount of work offered for a certain wage by an average representative of the population group in question during the year, expressed in the proportion of a person/year. The value of the demand function is the labor intensity of production, calculated as a quotient of the division of the number of employed by the real gross domestic product. This indicator can be interpreted as the amount of labor demand expressed in person/years by employers producing real value-added products in a certain fixed (depending on the selected units of measurement) volume per year. The article briefly discusses non-paid factors affecting the values of the level of economic activity of the population and the labor intensity. The functions of labor demand and supply are constructed for the Russian economy on the basis of the official statistical information for the period 2001–2014. The modified labor supply function turned out to be linear, and was characterized by a very low elasticity over the time period under consideration. The modified labor demand function is defined as a decreasing power function. Based on the comparisons of the constructed functions, it can be concluded that employers who determine the demand for labor react to changes in wages much more intense than employees who determine the supply of labor.