Unformatted text preview: Labor Supply and Demand and Labor Supply and Demand
Labor demand is a derived demand Labor derived A derived demand is demand for an input derived derived from consumers’ demand for the good or service produced with that input good In other words, consumers do not demand In labor to make goods and services, but rather they demand the goods and services created by that labor services
2 Labor Supply and Demand Curves and Labor Equilibrium of Wages and Employment Equilibrium
The market demand curve for labor is The downward-sloping, indicating a lower wage results in an increase in quantity of labor demanded labor The market labor supply curve is upwardsloping, indicating that higher wages sloping, cause the quantity of labor supplied to increase increase The point of intersection between these The two labor curves determines the equilibrium wage and employment level equilibrium
3 Labor Market
W3 W2 W1 Supply Demand Numbers of Workers 4 What causes a shift in labor demand?
The labor demand curve is shifted by: Changes in the demand for the firm’s Changes product product
– – – Price of the product, Price of related goods, and Anything else that influences product demand Changes in productivity of labor Expectations about the economy 5 What causes a shift in labor supply?
The labor supply curve is shifted by: Immigration and population growth Migration Wages in other professions Wages Number of hours people are willing to work (worker preferences) Nonwage income Nonwage Amenities (i.e. fringe benefits) 6 Hiring Decisions
When hiring workers, it is necessary to know When how much workers contribute to the output how The marginal product of labor (MPL) is the The additional output from hiring each worker additional
– The value of the marginal product of labor is the dollar The value of a worker’s contribution to production (MRP) value 7 Hiring Decisions
The firm will hire additional labor as long as The doing so adds more to revenue than cost – that is, as long as the value of the marginal product is greater than the wage rate is A firm hires workers up to the point where the value of the marginal revenue product equals equals the wage rate the 8 Labor Markets
Labor Total Labor Total Input Output Input (Workers) Marginal Product Product Product Product Price Price Marginal Marginal Revenue Product Product Wage Wage Rate Rate (MRC) 0 1 2 3 4 5 0 90 170 240 300 350 90 80 70 60 50 X 10 10 10 10 10 = 900 800 700 600 500 600 600 600 600 600
9 Optimal labor demand Strategic Planning
The amount of employees hired depend The on several factors: on
– Location decisions – Internal strategic planning – Compensation and benefit policies – Human resource management How can firms manipulate the labor How supply? supply?
10 10 Why does the government Why intervene? intervene?
When the market provides an inefficient When outcome when left to its own devices. outcome
– In other words, the profit motive is not In sufficient to produce an efficient level of these products that are necessary for an efficient economy (examples?) efficient When the market solution offends our When values (examples?) values
11 11 Government Regulation of Government the Labor Market the
Minimum wage Overtime laws Discrimination/Affirmative Action OSHA Immigration Taxes and subsidies Governmental spending
– Government employees – Government infrastructure
12 12 Minimum Wage
In 1938, Congress established a federal In minimum wage, the smallest amount of money per hour that an employer may legally pay an employee legally This benefits workers who can find work at This a wage level that exceeds the market equilibrium wage equilibrium But:
– What would happen to the labor market for What waiters/waitresses (supply and demand) if the minimum wage would be $20 (plus tips)? minimum 13 13 Minimum Wage
Minimum wage does not affect skilled and Minimum experienced workers because their wages already exceed the minimum already Minimum wage also has an impact on Minimum labor productivity:
– When income is raised, employees may When become more productive become 14 14 The Effects of Society and Culture The on the Labor Market on
Women in the workforce Attitudes toward education Population growth Globalization Discrimination Demand for labor is affected by anything that Demand affects the demand for the product being produced produced 15 15 ...
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- Spring '07
- Supply And Demand