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Unformatted text preview: ECO 320L, Fall 2010, Professor Beatrix Paal updated 9/9/2010 Lecture 7: Labor Market Equilibrium 1 Lecture 7 Labor Supply and Labor Demand Last time overview of the general equilibrium model overview of the labor market labor demand ( Chapt e r 3 . 2 ) labor supply ( Chapt e r 3 . 3 ) Today finish labor supply: the labor supply curve ( Chapt e r 3 . 3 ) labor market equilibrium ( Chapt e r 3 . 3 ) TFP experiments ( Chapt e r 9 . 1 ) the FE line ( Chapt e r 9 . 1 ) unemployment ( Chapt e r 3 . 4 ) Next time The labor supply (NS) curve Graphs labor supply as a function of the real wage, holding other determinants of labor supply fixed the other determinants will be shifters How does labor supply change when the real wage increases? Two effects: s ub s titution e ff ec t : as , leisure becomes relatively more expensive consume less of it labor supply increases in c om e e ff ec t : as , the value of available time increases consume more of everything (including leisure) labor supply falls n e t e ff ec t depends on the time horizon of the change in w : the longer the horizon, the larger the income effect Temporary change in the real wage: substitution effect dominates, labor supply increases Permanent change in the real wage: income effect dominates, labor supply falls. 7KH WHUP ODERU VXSSO\ FXUYH 16 ZLOO DOZD\V UHIHU WR WKH short run labor supply curve i.e. how does labor supply respond to a change in the c urr e n t real wage, holding the f u t ur e real wage fixed. 2 ECO 320L, Fall 2010, Professor Beatrix Paal updated 9/9/2010 Lecture 7: Labor Market Equilibrium 2 Shifters of the labor supply curve What other factors, besides w , change labor supply?...
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This note was uploaded on 10/25/2010 for the course ECO 320L taught by Professor Kendrick during the Fall '10 term at University of Texas at Austin.
- Fall '10