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Efficiency and Employment

4th Group
: Shari’a Economics
: English for Economic (D)
: Nur Fauzilah, S.pd.I, M. Pd.
Group Name:
1. Chintya Irin Pratitis
2. Enha Arini Khusnul F.
3. Sari Efrilia Dewi W.
4. Widya Alvida Rochmah
5. Wildani Tsaniyah
Efficiency and Employment
Economics employment and efficiency
Economics is this the social science that examines efficiency-the
best use of scarce resources. Society wants to use its limited resources
efficiently it desires to produce as many goods and services as possible
from is available resources, there by maximizing total satisfaction1.
1. full employment using available resource
To realize the best use of scarce resources, a soociety must
achieve both full employmennt and full production. by full employment
we mean the use of all available resources. No workers should be out of
work if they are willing and able to work. Nor Should capital eqiupment
or arable land sit idle.
Robert C.Guell, Issues in Economics Today, (Americas, New York , 2007.)
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Islamic Business and Economics Faculty
But note that we say all available resource should be employed.
each society has certain customs and practices that determine what
resources are available for employment and what resources are not.
2. full production using resources efficiently
The employment of all available resources is not enough however. To
achieve efficiency, society must also realize full production. By full
production we mean that all employed resources must be used so that
they provide the maximum possible satisfaction of our economic wants.
If we fail to realize full production, economics say our resources are
underemployed. full production implis two kinds of efficiency productive
and allocative efficiency.
a) Productive efficiency in the production of any particular mix of goods
and services in the least costly way.
b) Allocative efficiency is the least cost production of that particular mix
of goods and services must wanted by society.
Objectives Of The Employment Relationship
1. Efficiency
Efficiency is the effective use of scarce resources and, because of the
clear implications for competitiveness, economic development, and
economic prosperity, efficiency is an important objective of the
employment relationship. The standart economic definition of efficiency
is Pareto optimality-no one can be made better off without making
someone else worse off2. Otherwise,if someone can be made better of
without harming someone else, the current situation is wasteful
(inefficient) and resources are not being utilized as effectively as they
can be. For the purposes of the employment relationship, focus on this
last part- is labor being utilized effectivelly? Are products and services
Daniel M. Hausman and Michael, Economic Analysis and Moral philosophy, (Cambridge:
Cambridge University Press, 1996).
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Islamic Business and Economics Faculty
being produced at the desired quality at a competitive, profitable cost?
Is economic prosperity as high as it can be?
A basic result in economic is that every perfectly competitive
equilibrium is Pareto optimal (efficient). Therefore, neoclassical
economics emphasizes the imporrtances of competitive markets,
including competitive labor markets. In the legal arena, the efficiency
ofself-interested individuals exchanging in free marketsis fostered by the
common law elements of well-defined property damages. These
economic and legal theories are mutually reinforcing. Consumers, workes,
corporations, suppliers, investors, and other economic agents will
maximize their individual welfare. If they can enter into contracts as
equals in competitive markets, individual welfare maximization produces
areviolated, laissez faireeconomicand legal policies allow freely
adjusting prices-for inputs and outputs-to signal scarcity and relative
worth and therefore guide as an invisible hand the participants to
Something that prevents the invisible hand from producing efficient
outcomes is called a market failure. Market failures are controversial
because many believe that trying to correct a market failure, such as
through government regulation or subsidies, can make things worse, not
better.for example, a common neoclassical economics argument is that
increasing the minimum wage does more harm than good because it
results in greater unemployment. There are also problems with the
administrations and enforcement of public policies.
Some market failures stem form features of real-word labor markets
that are assumend away in the perfectly competitive neoclassical labor
market. Perfect competition depends on employers and employees being
economic and legal equals in the labour market, but verious real-word
market imperfections can favor the employer. Employees likely have
incomplete information about dismissal policies, accidents risks, or
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Islamic Business and Economics Faculty
pensions. Individual worker without the resources to purchase expertise
will not be the legal equal of corporations with their cadre of lawyers.
Internal labour market, unvested pension benefits, and employerspecific health insurance can increase a firm’s leverageby making
workers less mobile. Lack of savings or other resources can further
reduce employees mobility. These factors can turn perfect competition
into excessive or destructive competition that drive wages and working
conditions down. Atits worst, superior employer bargaining power can
result in low wages, log hours, dangerous conditions, and arbitrary or
abusive supervisory practices, but it can also be detrimental to efficiency
by undermining trust, cooperation, and motivation. Or consider what was
once called “industrial parasitim”- a company profits from paying low
wageswith no health insurance while society pays for nutritious food for
workers families and for visits to hospital emergency rooms for health
Other market failures stem form the human side of labor. Neoclassical
economics disregards the human side of labor-workers with feelings and
aspiration-so that it may be possible to increase efficiency by
incorporating psychological and social concerns. Contemporary human
resources management emphasize fair treatment- distributive and
procedural justice-as an important mechanism for reducing turnover and
improving employee loyalty, motivation, and performance. As discussed
in the next chapter, labor union might enhance efficiency by increasing
workers sense of equity and voice.
In sum, because of the importance of using scarce resources
effectively to promote economic prosperity, efficiency is a primary
objectiveof the employment relationship. In the ory, perfect competitive
yields efficient outcomes, but in real-world labor markets, there may
John W. Budd, Labor Relations: Striking a Balance, (New York: McGraw-Hill/Irwin, 2005)
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Islamic Business and Economics Faculty
be market failures and efficiency might be improved through government
regulations, labor unions, or other mechanisms. Market proponets argue
that many of these enhancement do more harm than good, but wideranging possibilities are summarized. To stimulate broad reflection about
the possible elements of an efficient employment relationship. In short,
the need for efficient workplaces is widely accepted; disagreements
arise over how to achieve over how to achieve this goal.
2. Equity
Equity in the employment relationship is a set of fair labor standardsthat
respect human dignity and liberty and include both material outcomes
and personal treatment4. In industrial relations, the particular concern
with equity is rooted in the sometimes abusive and exploitive
employment practices of the early 20th such as long hours at low wages
in dangerous working conditions. 5 As such, the push for equitable
employment outcomes focused to a large degree on minimum standardsminimum wages,
maximum haours,
minimum safety standards,
protections against arbitrary discharge and favoritism.
High Schools Grads 'Scarred' By High Unemployment
The job market is still bleak for young people with only high school
diplomas. Nearly half of high school graduates are still looking for fulltime work, according to a new report by Rutgers University's John J.
Heldrich Center for Workforce Development.
The national survey interviewed 544 recent high school grads from 2006
to 2011 who are not in college. Researchers say their hardship may have
long-term emotional and financial consequences.
Budd, Employment with a Human Face
Kaufman,” Labour Markets and Employment Regulation.”
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Islamic Business and Economics Faculty
Lowering Expectations
Valerie Peterson, 23, lowered her expectations a long time ago. Unable to
afford college and trying to find work with just a high school diploma
during the recession in Columbus, Ohio, she had no choice.
But she still has trouble getting her head around the reality of working the
overnight shift at a gas station, earning an extra 50 cents over minimum
wage — better than some of her old jobs at RadioShack and Wendy's, but
still a long stretch from her dream to start and run a business.
'Eking Out A Living'
The picture is equally dismal for millions of recent high school graduates,
says Rutgers University professor Cliff Zukin, who co-directed the national
The study found most still live with family, and only 1 in 4 have full-time
jobs. Of those surveyed who graduated before the recession between 2006
and 2008, 37 percent are employed full-time. Only 16 percent of those
who graduated between 2009 and 2011, the worst years of the recession,
work full-time.
Zukin says it's not surprising that less than half believe they will ever
achieve the American dream of doing better than their parents.
"This is a huge swath of American youth that have no economic prospects
right now for doing anything better than marginally eeking out a living,"
Zukin says.
'Something's Got To Give'
Like most others surveyed, Neetasha Thomson, 24, of Memphis, knows she
needs to go to college to get ahead, but she can't afford it.
She managed to go for just one year. Five years later, she now works 50plus hours each week at Wal-Mart and FedEx to pay down that debt.
Thompson applied for aid last year to go back to college again, but she
found it still too expensive. But she is saving and planning to try again.
"This is not what I want to be. This is not the life I want," Thompson says.
"I mean, point blank, I don't want to be just wasting my life, working these
two jobs. Something's got to give. Something's got to change."
But Thompson, like the majority of those surveyed, believes it will take
many years before she is financially stable enough to think about the big
life milestones, like buying a home or starting a family.
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Islamic Business and Economics Faculty
Over the long term, Zukin says, this generation will likely be "permanently
depressed," emotionally and economically. These recent high school
graduates may never earn as much money as "people who came before
them or people who came after them," he predicts.
Zukin was also struck by the number of young people who said the most
important thing they were looking for in a job was job security. At 24 years
old, he says, you don't say that unless you've been scarred.
Unemployment that graduated from high school is quite sharply, namely
almost reached 50%. Make a lot of them being permanently depressed,
emotionally and economically.
Just like Valerie Peterson said, whom graduated from high school can just
work part-time and get very small salary that it’s difficult to life itself and
even had to let go of her dream to college because financial difficulties.
As you can see in Indonesia something like this is happen too, then what
should we do?
We have two options that can be chosen:
1. After graduate from high school, working for a year and then save
the money and after quite can be used to go to college and during
the college we can also followed schollarship, which is a lot of it.
2. After graduate we work and in other hand we can do business smallscale, and if the business turns out move forward, will provide
advantage enough for us to develop the business and even can
provide a new job to anyone that graduated from high school.
So according to us, how difficult our situation right now, definitely there
is always another way we can do to reach our dreams.
Shari’a Economics Studies
Islamic Business and Economics Faculty
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