ECO3004 : Labour Economics

Semester 1 Credit Value: 10
Semester 2 Credit Value: 10
ECTS Credits: 10.0


Semester 1 aims: To develop students’ understanding of the principles and techniques used in modern labour economics, and use them to analyse core issues regarding the labour market such as: unemployment, wage formation, discrimination, human capital acquisition, the behaviour of labour market unions and their effect on labour market outcomes, and the relationship between labour markets and trade. The module also analyses empirical issues in the UK labour market in the light of the theoretical analysis.

Semester 2 aims: To develop students’ understanding of the principles and techniques used in modern personnel economics, and use them to analyse core issues such as: hiring the right workers, screening contracts, how workers signal productivity, incentive contracts (fixed or variable pay/efficiency wages), retirement decisions, promotion-based incentives, teams, job search and worker mobility, wage bargaining.

Outline Of Syllabus

Semester 1 Syllabus

TOPIC 1. Introduction: Traditional labour supply and labour demand models.
Labour force participation. The supply of hours. Backward bending labour supply. Demand for labour in competitive markets and non-competitive markets. Limitations.

TOPIC 2. Unemployment in a frictional model of the labour market
The Pissarides model of the labour market. Policy implications.

TOPIC 3. Wage Distribution in a frictional labour market
The Burdett-Mortensen model and endogenous wage dispersion. Other models of endogenous wage distributions.

TOPIC 4: An application of the Pissarides model of unemployment to wage formation within firms: Efficiency wages.

TOPIC 5. Unions in the labour market
The monopoly union model. The efficient contracts model. Insiders and outsiders.
Unions in frictional labour markets.

TOPIC 6. Human capital
The life cycle human capital model. The Ben-Porath model. Schooling. Measuring the returns to education (Mincer earning functions). Human Capital with frictional labour markets.

TOPIC 7. Discrimination and wage inequality in the labour market
Canonic model of employer discrimination. Other types of discrimination (employer,
customer and statistical discrimination). Measuring discrimination: the Oaxaca
decomposition. Discrimination in frictional models of the labour market.

Semester 2 Syllabus

TOPIC 1. Hiring
Recruitment with perfect information about worker ability. Hiring with symmetric uncertainty about worker ability. Hiring with asymmetric uncertainty. Sorting.

TOPIC 2. Signalling
Education and signalling of ability.

TOPIC 3. Screening
Contingent contracts and screening. Probation and up-or-out contracts.

TOPIC 4. Turnover and raiding
Job search. Worker quits and turnover. Responding to offers from other firms.

TOPIC 5. Teams and relative pay
Incentives in teams. Tournaments and promotions

TOPIC 6. Seniority-based incentives
Life-cycle incentives. Retirement and pensions.

TOPIC 7. Wages
Hedonic wages and compensating wage differentials. Wage bargaining.

Teaching Methods

Teaching Activities
Category Activity Number Length Student Hours Comment
Guided Independent StudyAssessment preparation and completion164:0064:00N/A
Scheduled Learning And Teaching ActivitiesLecture281:0028:00N/A
Guided Independent StudyDirected research and reading150:0050:00N/A
Scheduled Learning And Teaching ActivitiesSmall group teaching81:008:00N/A
Guided Independent StudyIndependent study150:0050:00N/A
Teaching Rationale And Relationship

1.Lectures give overview of main theoretical ideas and how to obtain theoretical conclusions from economic models.

2.Seminars provide the opportunity for students to work in a group context, critically discuss issues and apply the theoretic developments to real world examples, and for solving analytical problems.

3.Private study involves following up reading list references for seminar and examination preparation.

Assessment Methods

The format of resits will be determined by the Board of Examiners

Description Length Semester When Set Percentage Comment
Written Examination1202A75Unseen
Other Assessment
Description Semester When Set Percentage Comment
Essay1M252000 words
Assessment Rationale And Relationship

The 25% essay is appropriate to assess understanding beyond what is expected in a time limited unseen examination, allowing the student more options to convey their understanding. The exam is the standard tool for examining theoretical material under time and resource constraints.

The combination of 25% essay and 75% exam allows to test a wider set of skills, and also helps the student to obtain timely feedback for the final exam.

Reading Lists