3 number of substitute factor the more substitutes

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labor for any given wage increase) and vice versa. 3) Number of substitute factor: The more substitutes there are for labor, the more sensitive buyers of labor will be to a change in the price of labor. The more substitutes for labor, the higher the elasticity of demand for labor and vice versa. The Market Supply of Labor As the wage rate rises, the quantity supply of labor rises, ceteris paribus. Q L W S 300 200 100 W 1 W 2 W 3
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- 6 - Changes in the Supply of Labor Changes in the wage rate change the quantity supplies of labor. But what changes the entire labor supply curve? 1) Wage rates in other labor markets: Where the skills of workers are suitable for a number of jobs, the wage rate offered in other labor markets can bring about a change in the supply of labor in a particular labor market. 2) Non-money or non-pecuniary aspects of a job: Other things held constant people prefer to avoid dirty, heavy, dangerous work in cold climates. An increase in the overall "unpleasantness" of a job will cause or decrease in the supply of labor to that firm or industry and vice versa. Putting Supply and Demand Together Why Wage Rates Differ What conditions would be necessary for everyone to receive the same pay? a) The demand for every type of labor is the same. b) There are no special non-pecuniary aspects at any job. c) All labor is ultimately homogenous and can costlessly be trained for different types of employment d) All labor is mobile at zero cost. Given these conditions, there would be no difference in wages rates in the labor market. Wage rtes will not differ if the 4 conditions listed above hold. But in reality, they do not hold. Therefore, wage rates differ. Why demand and Supply Curves differ in different labor markets? Why did you choose the major that you chose? Marginal Productivity Theory : States that firms in competitive or perfect product and factor markets pay factors their MRP conditions: 1) MFC=P, MFC=W Q L W S W 3 W 1 W 2 Surplus Shortage D Q
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- 7 - 2) MRP=MFC 3) W=MRP, W=MFC 4) MRP=VMP 5) W=VMP Labor Markets and Information Screening : The process used by employers to increase the probability of choosing "good" employees based on certain criteria.
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