Chapter 20 - Labor and Entrepreneurship- the human inputs

Chapter 20 - Labor and Entrepreneurship- the human inputs -...

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Chapter 20 Labor and Entrepreneurship: The Human Inputs Octavius (a wealthy young Englishman): “I believe most intensely in the  dignity of labor.” The chauffeur: “That’s because you never done any.” GEORGE  BERNARD  SHAW “O for a muse of fire that would ascend / The brightest heaven of  invention” WILLIAM  SHAKESPEARE
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1. Markets for Labor Labor costs Largest share of GDP Wages Primary source of personal income Slowing wage growth Expanding income gap 2
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Index of trends in wages, compensation, and work hours, 1909–2005 (in real, inflation-adjusted terms) Figure 1 3
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Wage Determination in Competitive Markets Free labor market Demand Many tiny firms Supply Individual workers Act independently Labor demand Firms - Maximize profit Input price=Marginal revenue product (MRP) Market wage = MRP of labor 4
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Wage Determination in Competitive Markets • Marginal revenue product of labor (MRP L ) Increase in total revenue From: hire an additional unit of labor • Influence on MRP L Education (knowledge) On-the-job training (skills) Demand for labor – derived demand 5
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Equilibrium in a competitive labor market Figure 2 6 Number of Workers Weekly Wage D D S S $300 500,000 E
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Wage Determination in Competitive Markets Investment in human capital Expenditure on an individual Increase Influence on MRP L = MPP P ˣ of good Technical change - uncertain Increased productivity – increase MPP Reduced labor costs Lower price of good 7
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Productivity growth Almost everything in long run Long run - rising productivity Improved standard of living Workers
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This note was uploaded on 09/23/2009 for the course ECO 108 taught by Professor Wolman during the Spring '08 term at SUNY Stony Brook.

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Chapter 20 - Labor and Entrepreneurship- the human inputs -...

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