Principles of Economics- Mankiw (5th) 392

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

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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. QUICK QUIZ:
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