Chapter 11 The Labor Market
NON-DISCRIMINATING FIRMS
CAN HIRE FROM A LARGER SUPPLY OF WORKERS AT LOWER WAGES, RESULTING IN LOWER COSTS AND GREATER PROFITS
The following factors can lead to a shift of the labor demand curve?
Changes in product demand Changes in productivity Changes in the prices of other inputs
DISCRIMINATING FIRMS
MUST PAY HIGHER WAGES FOR "PREFERRED" WORKERS, RESULTING IN HIGHER COSTS AND LOWER PROFITS
What is the Marginal revenue product?
marginal physical product of labor times marginal revenue.
Supply of Labor
the amount of time an individual is willing to work at various wage rates.
Unions reduce labor supply to?
push wages higher; this causes an increase in supply in the nonunion sector, reducing wages.
In competitive labor markets, the firm is a
Price Taker, which means MR=P
INDUSTRIAL UNION
REPRESENTS ALL WORKERS EMPLOYED IN A SPECIFIC INDUSTRY (EXAMPLE: AUTO WORKERS—UAW
Backward Bending individual labor supply
- Income effect dominates substitution effect at higher wages. - Substitution effect dominates income effect at lower wages.
Competitive Labor Markets
- Many buyers and sellers - A homogeneous product - Easy entry and exit - All workers are equally productive. - Information in the industry is widely available and accurate.
market labor supply curve
- Unlike individual labor supply curves, the market labor supply curve is positively sloped: Higher wages attract more workers. - Market labor supply can shift (e.g., point a to point c) in response to various factors.
MRPL
= MPPL × MR
MRPL
= MPPL × P = VMPL
MARGINAL REVENUE PRODUCT, MRPL
Amount of additional revenue one worker earns for the firm
The firms demand for labor is derived from what?
Demand for it's product and the productivity of labor
MRPL =
MPPL × P = VMPL
BECKER'S theory
PRESSURES OF MARKET COMPETITION SHOULD DRIVE DISCRIMINATION TO ZERO IN THE LONG RUN
CRAFT UNION
REPRESENTS MEMBERS OF A SPECIFIC CRAFT OR OCCUPATION (EXAMPLE: AIR TRAFFIC CONTROLLERS— PATCO)
For competitive firms, profits are maximized when labor is hired to the point where?
The VALUE OF THE MARGINAL REVENUE PRODUCT= wage rate
4 shifts in labor supply
The following factors can lead to a shift of the labor supply curve: - Demographic changes - Nonwage aspects of jobs - Wages in alternative jobs - Nonwage income
FIRMS HIRE WORKERS BASED ON THEIR?
VALUE RELATIVE TO THEIR COST
Substitution effect
Workers choose more hours as wages rise (opportunity cost of leisure rises)
Income Effect
Workers chose fewer hours when wages rises and more hours when wages fall
Equilibrium in competitive labor markets occurs when?
at the intersection of supply and demand.
Measures responsiveness of quantity of labor demanded to changes in wages. Factors include:
elasticity of demand for the product. ease of input substitutability. labor's share of total production costs.