Lecture 2 Labor demand, minimum wages.pdf - International Labour Markets Spring 2018 Peter Jensen Department of Economics and Business Aarhus University

Lecture 2 Labor demand, minimum wages.pdf - International...

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1 International Labour Markets Spring 2018 Peter Jensen Department of Economics and Business Aarhus University Labor demand Literature: Chapters 3, 4 and 5 in “Modern Labor Economics” Policy analysis of minimum wages Why? Because minimum wages increase the cost of hiring workers
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2 Labor demand: refresher Downward-sloping labor demand curve Labor demand Any policy, regulation or institution that increase the costs of employing workers will influence the labor demand Today we will look at 1. Assumptions 2. Elasticities 3. Frictions and go on to policy analysis
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3 Labor demand: Assumptions Firms: profit maximization On the margin: marginal income = marginal expense Marginal revenue product (MRP) L L ME MRP MR MP MRP L L L Q / P If product market is competitive declining ! Labor demand: Assumptions Marginal expense (marginal cost) L ME W If labor market is competitive i.e. the firm is a wage taker
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4 Short-run labor demand Capital is constant Profit maximization leads to the derived labor demand (both product and labor markets are competitive) L L ME MRP W P MP L P W MP L / Short-run labor demand
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