MODERNPRINCIPLES : MICROECONOMICS MODERNPRINCIPLESOFECONOMICS18 18Labor Markets Facts and Tools 1.In Chapter 3, we listed six important demand shifters. Since the demand for labor is like the demand for any other good, those same factors apply here. Let’s look at factors that might shift the demand for janitors at the McDonald’s we discussed. For each of the following cases, state whether labor demand will rise or fall, and also state which of the six factors seems to be causing the shift in demand. a.A new junior high school opens up across the street from the McDonald’s. b.Customers become much more concerned about clean restaurants: They’ll walk out if there’s dirt on the floor. c.As robots like the Roomba vacuum cleaner become cheaper, the McDonald’s buys some robots to do half of the janitors’ work. 1. a.Demand will rise because of a rise inpopulation, an important demand shifter from Chapter 3.Solution
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2.Now let’s do the same with shifts in Joe’s labor supply from Figure 18.2. We listed five important supply shifters in Chapter 3. For each example state whether you think Joe’s labor supply will tend to increase or decrease as a result of the change, and state which of the five factors seem to cause the supply shift. a.The government raises Joe’s income tax rate, so now he pays 20% of his wages to the government instead of the old 10%. b.The price of comfortable work shoes falls dramatically. Now, his feet won’t ache nearly as much after a full day of work. c.While in Las Vegas for the weekend, Joe wins a $1 million jackpot. Solution
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S-1 c.Again,opportunity costs: Leisure has become much more attractive for Joe and the opportunity cost of work is now higher. Before Joe won one million dollars, Cowen3e_CH18_Solutions.indd129/06/1511:18 AM
S-2•CHAPTER 18 • Labor Markets the alternative to working might have been staying at home and watching television. Now the alternative is flying to Hawaii and spending time on the beach. With one million in the bank, he could go for years without working, and if he lives modestly and invests conservatively, he might even be able to live off the interest. This is a wealth effect.
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