Unit 15 Labor Markets

Human Capital

refers to tools of the mind, the stuff in people's heads that makes them productive. - produced by investing time and other resources in education, training, and experience.

The value of the marginal product of labor (also known as the marginal revenue product of labor) is:

the increase in firm revenue when an additional worker is employed

Why might an individual's labor supply curve bend backwards?

As wages rise above a threshold level, the individual may opt for more leisure time

The Supply of Labor

High wages encourage greater supply of labor. • An increases in wages leads to a greater market supply of labor for two reasons: - Some currently employed workers will likely work more as the wage rises; - The higher wages will attract workers from other industries. • Thus, the market supply curve is upward sloping.

Demand for Labor

The demand curve for labor can be derived from the marginal product of labor. • The marginal product of labor generally declines as more labor is hired. Hire if: MPL > w.

The Marginal Product of Labor

The increase in revenue created by hiring an additional worker Thus, a firm is willing to hire a worker when the marginal product of labor is greater than the wage.

Compensating Differentials

a difference in wages that offsets differences in working conditions. -Labor supply will shift to account for differences in working conditions across jobs.

Which of the following statements is true?

The market supply of labor is always upward sloping, but an individual's labor supply may not be upward sloping throughout its entire range.

Preference-Based Discrimination

based on a plain, flat-out dislike of some group of people due to race, religion, gender, etc. 3 types - Discrimination by Employers - Discrimination by Customers - Discrimination by Employees

Labor Market Equilibrium

equilibrium in the labor market, the marginal product of labor equals the market wage (MPL = w). -A firm will hire workers whenever the marginal product of labor exceeds the market wage (MPL > w).

A firm is willing to hire a worker when the marginal product of labor is:

greater than the wage.

The Backwards Bending Labor Supply Curve

individuals on the labor curve represent as backwards bending U shapes because As rate increases you tend to work more until a certain point and then you begin to work less as the rate increases even higher

Statistical Discrimination

is using information about group averages to make conclusions about individuals. Though statistical discrimination is a useful shorthand for making hiring decisions, it can cause many errors.

The market demand curve for labor is based on the:

marginal product of labor.

The increase in a firm's revenues created by hiring an additional worker is called:

marginal revenue product of labor.

In general, wages are determined

not by the skills of the worker alone, but also by the productivity of the entire economy

If all persons had the same preferences and productivity, then the highest paying jobs would be the most

undesirable.