ECO3041 - Ch 8 Labor Market

ECO3041 - Ch 8 Labor Market - Department of Economics, FIU...

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1 | P a g e Department of Economics, FIU Chapter 8 Notes Prof. Dacal
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Chapter 8 Notes Chapter 8 The Labor Market Labor Supply Labor supply is the willingness and ability to work specific amounts of time at alternative wage rates in a given time period, ceteris paribus. Income vs. leisure Firms determine demand of labor, but workers determine supply labor. If you want to work, you will supply your services. If you do not want to work, you will stay home and play x-box. The aggregate supply of labor is the sum of the labor supplied by every one in the economy. When a firm determines how many employees to hire it compares the marginal cost and marginal benefit of hiring an additional worker. When a person determines to work or not he/she compares the marginal cost and marginal benefit of working. Working is necessary to buy all the little toys we want. When we work we have an opportunity cost of working, which is our leisure time. Opportunity cost is the most desired goods and services that are forgone in order to obtain something else. Leisure is a term used for all the off-the-job activities. The supply of labor is derived using the following three points: The opportunity cost of working is the amount of leisure time that must be given up in the process. As the opportunity cost of job time increases, we require corresponding higher rate of real pay. The marginal utility of income declies as you earn more money.
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Chapter 8 Notes The latter two bullets are defined as: Substitution effect of a higher real wage is the tendency of workers to supply more labor in response to higher reward for working. Income effect of a higher real wage is the tendency of workers to supply less labor in response to becoming wealthier. Market Supply Market supply of labor is the total quantity of labor that workers are willing and able to supply at alternative wage rates in a given time period, ceteris paribus. p w Labor Supply Labor Factors That Shift the Labor Supply Curve Examples are: 1. Increase in wealth 2. Expected future wages 3. Participation rate 4. Immigration 5. Working age 6. Minimum wage Any other factor outside of real wages makes this curve shift.
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This note was uploaded on 01/22/2012 for the course ECO 3041 taught by Professor Dacal during the Fall '11 term at FIU.

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ECO3041 - Ch 8 Labor Market - Department of Economics, FIU...

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