Chapter 14: The Market Labor and Other Factors of Production

Labor Union

An organization of employees that has a legal right to bargain with employers about wages and working conditions.

Equilibrium in the Labor Market

As in other markets, equilibrium in the labor market occurs where the demand curve for labor and the supply curve of labor intersect.

The Labor Supply Curve

As the wage increases, the opportunity cost of leisure increases, causing individuals to supply a greater quantity of labor. Therefore, the labor supply curve is upward sloping.

Compensating Differentials

Higher wages that compensate workers for unpleasant aspects of a job.

Factors That Shift The Market Demand Curve For Labor

Increases in human capital, changes in technology, changes in the price of the product, changes in the quantity of other inputs, changes in the number of firms in the market.

Factors That Shift The Market Supply Curve of Labor

Increasing Population - as the population grows due to the number of births exceeding the number of deaths and due to immigration, the supply curve of labor shifts to the right. Changing Demographics - low birthrate means a decline in population which could cause the labor supply curve to shift to the left. Changing Alternatives - labor market depends on the opportunities available in other labor markets. A mass exodus of workers leaving the market results in the labor supply curve to shift to the left while industries they entered shifted the labor supply curve to the right.

Factors of Production

Labor, capital, natural resources, and inputs used to produce goods and services.

Economic Discrimination

Paying a person a lower wage or excluding a person from an occupation on the basis of an irrelevant characteristic such as race or gender.

Human Capital

The accumulated training and skills that workers posses.

Marginal Product of Labor

The additional output a firm produces as a result of hiring one more worker.

Personnel Economics

The application of economic analysis to human resources issues.

Marginal Revenue Product of Labor

The change in a firm's revenue as a result of hiring one more worker.

Derived Demand

The demand for a factor of production; it depends on the demand for the good the factor produces.

Economic Rent (Pure Rent)

The price of a factor of production that is fixed in supply.

Monopsony

The sole buyer of a factor of production.

Marginal Productivity Theory of Income Distribution

The theory that the distribution of income is determined by the marginal productivity of the factors of production that individuals own.