Competitive and Monopsonistic
Labour, like all other things which are purchased and sold, and which may be increased
or diminished in quantity, has its…market price
rofessional football players earn more than ministers or nurses.
with college degrees generally earn less than truck drivers, who may not have
completed high school.
Professors of accounting typically earn more than
professors of history with equivalent educational background and teaching experience.
Even if your history professor is an outstanding teacher, capable of communicating
effectively and concerned about students’ problems, she probably earns less than a
mediocre teacher of accounting.
Why do different occupations offer different salaries?
Obviously not because of
their relative worth to us as individuals.
Just as there is a market for final goods and
services—calculators, automobiles, dry cleaning—there is a market for labor as a
resource in the production process.
In this competitive labor market, the forces of supply
and demand determine the wage rate workers receive.
By concentrating on the economic determinants of employment—those that relate
most directly to production and promotion of a product—we do not mean to suggest that
other factors are unimportant.
Many noneconomic forces influence who is employed at
what wage, including social status, appearance, sex, race, and personal acquaintances.
Our purpose is simply to show how economic forces affect the wages paid and the
number of employees hired.
Such a model can show not only how labor markets work,
but how attempts to legislate wages, like minimum wage laws, affect the labor market.
The general principles that govern the labor market also apply to the markets for
other resources, principally land and capital.
The use of land and capital has a price,
called rent or interest, which is determined by supply and demand.
capital, and labor are all subject to the law of diminishing marginal returns.
certain point and given a fixed quantity of at least one resource, more land, labor, or
capital will produce less and less additional output.
The Demand for and Supply of Labor
Labor is a special kind of commodity, one in which people have a personal stake.
employer buys this commodity at a price: the wage rate the laborer receives in exchange