Labor Markets in Health Care

Labor Markets in - The Economics of Labor Markets In this session we want to discuss a little of the economics of labor markets First well do some

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
The Economics of Labor Markets In this session we want to discuss a little of the economics of labor markets. First we’ll do some basics of labor demand and labor supply, then discuss the market equilibrium. From there, as application, we’ll discuss the labor markets for RNs and physicians. Finally, we’ll talk some on pay and productivity. I. Profit Maximization Firms attempt to max profits. Firms are assumed to ask, “Can we make changes that will improve profits?” A firm can make changes only in variables that are within its control – in general the prices a firm charges for its product and they must pay for inputs are fixed (if the input and output markets are competitive). Thus it can decide how to increase or decrease output. A firm can expand or contract output by altering its use of inputs. In general, we assume that a firm produces its output by combining two types of inputs or factors of production: Labor and Capital . Several important issues arise: If the income generated by one more unit of an input (known as marginal revenue product) exceeds the additional expense, then add a unit of that input; If the income generated by one more unit of input is less than the additional expense, reduce employment of that input; If the income generated by one more unit of input is equal to the additional expense, no further changes in that input are desirable. These issues state the profit maximizing criterion in terms of inputs as opposed to output.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
II. Labor Demand Firms need labor among other inputs to produce goods or services. Relevant issues are 1) product demand, 2) the amount of labor and capital they can acquire at given prices, and 3) the choice of technologies available. We are interested in finding out how the number of workers employed by a firm or set of firms is affected by changes in one or more of these three forces. 1. Wage changes If wages increased: First , higher wages imply higher costs and, usually, higher product prices. Since consumers will respond to this by buying less employers would tend to reduce output, this implies less labor needed. This decline in employment is called a scale effect – this is the effect on desired employment of a smaller scale of production Second , as wages increase, employers have incentives to cut costs by adopting a technology that relies more on capital and less on labor. This effect is known as the substitution effect , because as wages rise, capital is substituted for labor in the production process. This gives us what we know as the demand curve for labor 2. Changes in other forces affecting demand. Wage Employment
Background image of page 2
Demand for the product -- only would get a scale effect – labor demand will shift with product demand. Suppose the supply of capital
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/08/2012 for the course ECON 320 taught by Professor Chan during the Spring '11 term at SUNY Albany.

Page1 / 24

Labor Markets in - The Economics of Labor Markets In this session we want to discuss a little of the economics of labor markets First well do some

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online