Ch 14: Markets for labor
What happens to wages in an industry if productivity of labor increases?
If productivity increases, the marginal product of labor at each level of hiring increases, and thus the marginal product of labor is greater than the cost of hiring another laborer. In other words, when productivity rises, all workers create more output. Since output has increased, this means the marginal revenue per worker increases. Now the quantity demanded of labor increases at each wage, thus the demand for labor increases. Given the increase in demand, there will be a shortage of labor, the wage rate will be bid up until it reaches a new higher equilibrium, and more workers will be hired.
Suppose workers in an industry receive higher levels of education. This will _________.
Incr demand for workers
Workers in an industry experience an increase in productivity. This causes what?
Incr in wages and incr in employment
A profit-maximizing firm will hire an additional worker if which of the following is true?
MRP > wage
As labor incr
MRP diminished
If a compensating differential exists, this means what?
One wage will be higher than the other because the job with lower wages has more desirable working conditions
What is the equation to determine the number of workers a firm should hire?
Price × (marginal productivity of labor) = wages.
Discrimination in a labor market will result in which of the following changes in profits?
Profits decr Firm hiring MRP>wage
If a market is required to provide health care to all full-time workers (but not part-time workers), what would you predict?
The firm will hire more part-time workers and fewer full-time workers.
What will happen to the number of employees that a restaurant wants to hire at each wage rate if a government requires all restaurants to provide health insurance for all of its employees?
The number of employees will decrease as the cost of hiring a worker exceeds the marginal product of labor.
We can tell that the income effect is dominating the substitution effect when which of the following is true?
Wages incr, ppl work fewer hrs
We can tell that substitution effect is dominating the income effect when which of the following is true?
Wages incr, ppl work more Wages decr and people work less
why the marginal product of each worker at each level of labor employed gives us a demand curve for labor.
When the firm is deciding whether they should increase their workers from one to two workers, they should look at the cost of the additional worker and the value the additional worker creates. The firm, attempting to maximize profits, compares the benefits of hiring one more worker (the marginal revenue product of labor) with the costs of hiring that worker (the wage). As long as the additional benefits are greater than the additional costs, the firm expands its production by hiring more workers. The expansion causes the marginal product to fall, and eventually the marginal revenue product of labor equals the wage. The firm stops expanding its hiring of workers at that point.
What happens to wages in an industry if the demand for the product decreases?
price of product will fall labor demand falls = lower wages
If a union reduces supply of workers for a group of firms, what would you expect to happen to wages paid by those firms and wages paid by non-union firms?
union wages incr non wages decr
Suppose wages increase, ceteris paribus. The marginal product of labor will do which of the following?
incr
will the marginal product of labor in the more prestigious position be higher, lower, or equal to the marginal product of labor in the less prestigious position?
less diminishing marginal product
If one job has more prestige than another, the job with the greater prestige will likely pay ______________ because of a difference in ______________.
less supply