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EC 201 11-7-08 - o Julia Roberts(movie star Skills very...

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EC 201 11-7-08 Labor D Labor S} => equilibrium Labor D for firm=MRP= (MP)(MR) Labor Supply Wage ↑ o 1. “richer” →income effect Leisure is normal good Inc. eff. → less work o 2. Wage is opp. Cost of leisure Wage ↑→leisure more expensive Substitution effect →work more Wage ↓ o 1. “poorer” Inc. effect → work more o 2. Leisure cheaper Subst. effect →work less Net effect of ∆ wage on labor supply = inc. eff. + subst. eff. o A. “backward-bending labor-supply curve” Inc. eff. > subst. eff. Labor-supply elast. = (% ∆ Ls/ %∆W) <0 o B. perfectly inelastic labor-supply curve Elast. = 0 Inc. effect= subst. effect o C. upward-sloping labor-supply curve Elast. >0 Subst. eff. > income eff.
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Statistical evidence: o Men 25-55 elast. ~ 0 o Women elast. > 0 But probably rel. small E= 0.2 0.5 Overall labor- supply elast. ~0.15 ~0.20 Labor-Market Equilibrium o Alex Rodriguez (baseball star)
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Unformatted text preview: o Julia Roberts (movie star) Skills very difficult to reproduce • D for Julia Roberts + Alex Rodriguez • Small S + large D → equil. Wage high • Effect of education on equil. Wage rates: o D = MRP=(MP)(MR) Education => more productive => MP↑ => MRP ↑ => D for labor ↑ => higher equil. Wage o S: education is costly to acquire => all else equal, S of labor farther to left for highly educated workers o Both D + S: highly educated have higher earnings • 1910: US 11% finished HS • Legislatures: o Mandatory school attendance o School bus o School district consolidation o 1940: 60% o 1960 > 80% • “Great Compression” of wage rates o Early 20 th cent. : ↓ in inequality • Since~ 1975, ↑↑↑ in D for highly skilled labor (e.g., college) also, experience • Since 1975↑↑↑ in inequality...
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