May 29, 2023 

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INFLATIONARY GAP: The difference between the equilibrium real production achieved in the short-run aggregate market and full-employment real production the occurs when short-run equilibrium real production is more than full-employment real production. An inflationary gap, also termed an expansionary gap, is associated with a business-cycle expansion, especially the latter stages of an expansion. This is one of two alternative output gaps that can occur when short-run production differs from full employment. The other is a recessionary gap.

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The mental and physical human efforts used in the production of goods and services. This is one of four basic categories of resources, or factors of production. The other three are capital, land, and entrepreneurship.
Labor is the human component of the production process (excluding risk-taking entrepreneurship), that is, the workers. It takes center stage for most types of production. In modern industrialized economies, like the United States, labor accounts for about two-thirds of the production.

More Than Sweat

Although labor is often associated with the physical efforts of hard-working, sweaty, grime-covered factory workers, farm hands, construction crews, and others who get down and dirty in the production process, labor includes all forms of mental and physical effort.
  • Labor also includes non-sweaty, dirt-free physical effort, such as clerical workers hunched over computer screens and accountants trapped in corner cubicles preparing income statements and balance sheets.

  • Labor also includes mental efforts, such as executives planning marketing strategies and supervisors directing the jobs of factory workers, farm hands, and construction crews.
Labor is all human efforts (except entrepreneurship), including that provided by clerical workers, technicians, professionals, managers, and even company presidents.

Human Capital

A key dimension of labor is human capital. Human capital is the knowledge, experience, and training that make labor more productive. As a "produced" resource, human capital is conceptually comparable to standard physical capital. The primary difference is that human capital involves the transformation of a human, whereas physical capital involves the transformation of nonhuman materials.

While the notion of human capital is relatively "new" to the study of economics, it has always been a fundamental aspect of labor. Human capital is an intrinsic part of labor, always has been, always will be. Every worker, even those who perform the simplest jobs, have acquired some degree of human capital.

For example, human capital might not seem relevant for a factory worker who spends eight hours a day attaching lug nuts to the wheel of a car. While this simple task does not require an advanced college degree, it is a task that must be learned, and once learned it is human capital. Virtually every job performed by every labor involves some degree of human capital.

Job Satisfaction

Satisfaction is another key dimension of labor. Unlike capital and land, the human being who owns the resource cannot be separated from the labor resource. When labor is engaged in production, a human being is directly involved in the process. This means that the human derives some degree of satisfaction from the production. This satisfaction can be good or bad.
  • The Good: Harold "Hair Doo" Dueterman is a professional baseball player. Playing baseball is also his job. He provides entertainment to thousands of fans. But he also enjoys playing baseball immensely, always has, always will. He receives direct satisfaction of his wants and needs from playing baseball.

  • The Bad: Pollyanna Pumpernickel works as a clerical assistant for a large insurance office. She spends her days pushing papers from one stack to another. It is dull, boring, and mind-numbing work. She hates it. She hates it thoroughly. She hates her boss. She hates her co-workers. She detests everything about her job. Paula's satisfaction of wants and needs declines at work.
Every job affects satisfaction in one way or the other. More often that not, the job reduces satisfaction. The lucky few have jobs which enhance satisfaction. The wage a worker receives, in part, reflects this job satisfaction. For example, Hair Doo is actually willing to work for lower pay (even though he is paid millions) than if he hated to play baseball. And Paula needs to receive higher pay (even though she is paid very little) than if she enjoyed her job.

Labor and Leisure

The human component of labor results in a tradeoff between labor and leisure. A person can choose to spend time engaged in productive work, which often generates negative satisfaction, or to spend time engaged in leisure activities, which generally provides positive satisfaction.

The choice of labor over leisure depends on the compensation (that is, wage) received. Or put in other terms, the wage paid to labor needs to cover the opportunity cost of working, which is the satisfaction foregone from leisure. A higher wage, as such, is needed to induce people to spend more time working.

The labor-leisure tradeoff, however, generates an interesting supply relation not commonly found with other types of commodities. While a higher wage initially induces people to spend more time working, at some point the opposite occurs. A higher wage can actually induce people to spend less time working and more time with leisure, creating what is termed a backward-bending labor supply curve.


Recommended Citation:

LABOR, AmosWEB Encyclonomic WEB*pedia,, AmosWEB LLC, 2000-2023. [Accessed: May 29, 2023].

Check Out These Related Terms...

     | factors of production | capital | land | entrepreneurship | natural resources |

Or For A Little Background...

     | production | risk | entrepreneurship | factory | human capital | Satisfaction | wage | opportunity cost |

And For Further Study...

     | third estate | ownership and control | property rights | private sector | second rule of subjectivity | production possibilities | full employment | short-run production analysis | variable input | labor force | unemployment | household sector |

Related Websites (Will Open in New Window)...

     | U.S. Department of Labor | AFL-CIO |

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