final review - Labor demand Marginal productivity model...

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Labor demand Marginal productivity model MRP=ME MP*MR=ME MP*P=W (competitive market) The own-wage elasticity of demand Percentage change in its employment induced by a 1 percent increase in its wage rate Elasticity = % change in employment / % change in wage rate >1 , elastic <1, inelastic The Hicks-Marshall Laws of derived demand The own-wage elasticity of demand is high: When the price elasticity of demand for the product being produced is high Higher in long run than in short run When other factors of production can be easily substituted for the category of labor When the supply of other factors of production is highly elastic (incentive to substitute is higher) When the cost of employing the category of labor is a large share of the total costs of productions The Cross-wage Elasticity of demand The elasticity of demand for input j with respect to the price of input k Cross wage elasticities of demand % change in employment in j / %change in wage k % change in employment in k/ %change in wage j Positive is gross substitutes Negative is gross complements
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Frictions on employee A model of wage and employment decisions based on the assumption that employee mobility is costly. The supply of labor curve to firms becomes upward sloping when employee mobility is assumed to be costly. Monopsonistic Model A firm that is the only buyer of labor in its labor market Marginal expense of labor exceeds the wage rate Marginal expense curve lies above the supply curve and the slope is steeper Profit max. MRP=ME Pay workers a wage less than their marginal revenue product A leftward shift in labor supply increase ME, raises wages and reduce firms’ desired level of employment in the short run Quasi-fixed costs costs that associated with the number of workers hired (non-wage labor cost) Labor Investments Cost of hiring Training (explicit and implicit) Employee benefits Insurance, retirement plans, vacation days… Labor Supply Labor supply curve
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This note was uploaded on 09/07/2009 for the course ECON 151 taught by Professor Staff during the Spring '08 term at University of California, Berkeley.

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final review - Labor demand Marginal productivity model...

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