Principles of Economics- Mankiw (5th) 392 - 404 PA R T S I...

404 PART SIX THE ECONOMICS OF LABOR MARKETS
important reason is technological progress: Scientists and engineers are constantly
figuring out new and better ways of doing things. This has profound implications
for the labor market. Technological advance raises the marginal product of labor,
which in turn increases the demand for labor. Such technological advance explains
persistently rising employment in face of rising wages: Even though wages (ad-
justed for inflation) increased by 62 percent over these three decades, firms
nonetheless increased by 72 percent the number of workers they employed.
The Supply of Other Factors
The quantity available of one factor of
production can affect the marginal product of other factors. A fall in the supply of
ladders, for instance, will reduce the marginal product of apple pickers and thus
the demand for apple pickers. We consider this linkage among the factors of pro-
duction more fully later in the chapter.
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