Microecon - Microeconomics November 21st, 2011 Labor Market...

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Microeconomics November 21 st , 2011 Labor Market Equilibrium: The Orthodox View Supply, demand, and compensating differentials Big Ideas - Workers accept work requiring more training or greater hazards only if they receive higher wages as compensating differential. - Higher wages for skilled or dangerous work encourages employers to economize on these workers. - Higher prices for products of skilled or dangerous work encourages consumers to economize. Demand is one side of the labor The other side is supply – how much labor will be provided at any price.
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Do Labor Supply curves slope up? - Higher wages raise the cost of not working for pay. - Higher wages allow workers to substitute market goods for home production: the substitution effect . - Higher wages and income also discourage market work by making time at home more desirable: the income effect . - If the substitution effect is greater than the income effect, labor supply curves slope up. - If the income effect is greater, labor supply curves slope down. Do Labor Supply curves slope up? Or down? Higher wages mean that you have more money to spend on having fun. And you don’t need to work as much to pay tuition. Higher wages and higher income also make time at home more desirable: the income effect . If the income effect is greater than the substitution effect, then labor supply curves are backward bending!
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What would we do without “work”? - People have intrinsic need to: o Be useful o Work with others o Have sense of accomplishment. - Otherwise, people do regrettable things. Orthodox approach teaches that work is necessarily bad - It denies that we can have productive and creative work. - People do their best work when they have opportunities for self-expression, are valued and in control of their time. What is the slope of the labor supply curve? - From 1870 through the 1930s, the American male work week dropped while wages rose. -
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This note was uploaded on 04/04/2012 for the course ECON 103 taught by Professor Voorheis during the Fall '08 term at UMass (Amherst).

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Microecon - Microeconomics November 21st, 2011 Labor Market...

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