11 labor markets
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    11 labor markets 11 labor markets Presentation Transcript

    • Chapter 11Labor Markets • Key Concepts • Summary • Practice Quiz • Internet Exercises ©2000 South-Western College Publishing 1
    • In this chapter, you will learn to solve these economic puzzles:What determines unions Howthe NCAAthe wage Does do labor exploit influence wagespays? an employer and ratecollege athletes? employment? 2
    • In a PerfectlyCompetitive Market,what determines the level of Wages?The intersection of the demand for labor and the supply of labor 3
    • Market Supply and Demand SWages D Quantity of Labor 4
    • What does the DemandCurve for Labor show?The different quantities of labor employers are willing to hire at different wage rates in a given time period, ceteris paribus 5
    • 60 Production Function50 Total Output4030 Total Output2010 Quantity of Labor 1 2 3 4 5 6 6
    • What is Marginal Revenue Product?The increase in total revenue to a firm resulting from hiring an additional unit of labor or other variable resource 7
    • 12 Marginal Product Curve10 Marginal Product 8 6 Law of 4 Diminishing Returns 2 Quantity of Labor 1 2 3 4 5 6 8
    • What is the DemandCurve for Labor equal to? It is equal to the marginal revenue product of labor 9
    • $350 Demand Curve for Labor$280 M RP$210 =d em$140 an d$70 1 2 3 4 5Q 10
    • Increase in Quantity of labor an employer will hireDecrease inWage Rate 11
    • How do we measure MRP in Perfect Competition?A perfectly competitive firm’s marginal revenue product is equal to the marginal product of its labor times the price of its product 12
    • What is Derived Demand?The demand for labor and other factors of production that depends on the consumer demand for final goods and services the factors produce 13
    • What does the SupplyCurve for Labor show?The different quantities of labor workers are willing to offer employers at different wage rates in a given time period, ceteris paribus 14
    • $350 Supply Curve of Labor Wage Rate per day$280 S$210$140$70 D Quantity of Labor 10 20 30 40 50 15
    • Increase in Quantity of labor willing to workIncrease inWage Rate 16
    • What is Human Capital? The accumulation of education, training, experience, and health that enables a worker to enter an occupation and be productive 17
    • $350 Competitive Labor Market Wage Rate per day$280 E S$210$140$70 D Quantity of Labor 10 20 30 40 50 18
    • $350 Competitive Labor Market$280 Wage Rate per day E$210 S$140$70 D Quantity of Labor 1 2 3 4 5 19
    • Does the PerfectlyCompetitive model apply to workers in unions? No 20
    • What are examples of Unions?• Teamsters• United Auto Workers• National Education Assoc.• American Federation of Government Employees 21
    • How do Unions attempt to raise wages?• Increase demand for labor• Decrease supply for labor• Power 22
    • What is Featherbedding? Unions force firms to hire more workers than are required or to impose work rules that reduce output per worker 23
    • What else can Unions do to increase the demand for labor? Decrease competition from other nations 24
    • Unions cause an increase$350 in the demand for labor$280 Wage Rate per day E2 S$210 E1$140$70 D2 Quantity of Labor D1 10 20 30 40 50 25
    • Increase in wages and employment Increase in the demand for labor Unionfeatherbeds 26
    • Unions cause a decrease$420 in the supply for labor$350 Wage Rate per day E2 S2$280 S1 E1$210$140 D1 Quantity of Labor 10 20 30 40 50 27
    • How else can Unions raise wages? Collective bargaining 28
    • What isCollective Bargaining?The process of negotiations between the union and management over wages and working conditions 29
    • $350 Collective Bargaining causes a Wage Rate increase$280 Wage Rate per day Unemployment S$210$140$70 D Quantity of Labor 10 20 30 40 50 30
    • What factors can cause a change in the Demand for Labor? • Unions • Prices of substitute goods • Demand for final products • Marginal product of labor 31
    • What factors can cause a change in the Supply for Labor?• Unions• Demographic trends• Expectations of future income• Changes in immigrations laws• Education and training 32
    • What has happened to Union Membership since WWII?Union power has declined 33
    • In which sectors has union membership increased since 1989?Public sector and services 34
    • How does union membership in the U.S. compare to other countries?Union membership is far below that of other industrialized countries 35
    • What is a Monopsony?A labor market in which a single firm hires labor 36
    • 87% 40% 37% 32% 29% 24%15%U.S. Japan CanadaU.K. Germany Italy Sweden 37
    • What is Marginal Factor Cost (MFC)? The additional total cost resulting from a one- unit increase in the quantity of labor 38
    • What conclusion can be drawn from aMonopsonistic Market?Because the monopsonist can hire additional workers only by raising the wage rate for all workers, the MFC > W 39
    • A Monopsonist determines its Wage Rate$5$4 Dollars per hour MFC$3 S$2 D (MRP)$1 Quantity of Labor 1 2 3 4 5 40
    • How are wages comparedbetween the two markets? A monopsony hires fewer workers and pays a lower wage than a firm in a competitive labor market 41
    • Key Concepts 42
    • Key Concepts• In a Perfectly Competitive Market, what deter• What is Marginal Revenue Product?• What is the Demand Curve for Labor equal to• How do we measure MRP in Perfect Competit• What does the Supply Curve for Labor show? 43
    • Key Concepts cont.• How do Unions attempt to raise wages?• What is Featherbedding?• What is Collective Bargaining?• What factors can cause a change in the Dema• What factors can cause a change in the Suppl 44
    • Key Concepts cont.• What has happened to Union Membership sinc• How does union membership in the U.S. comp• What is a Monopsony?• What is Marginal Factor Cost (MFC)?• How are wages compared between the two markets? 45
    • Summary 46
    • Marginal revenue product (MRP)is determined by a worker’scontribution to a firm’s total revenue.Algebraically, the MRP equals theprice of the product times theworker’s marginal product (MP). 47
    • The demand curve for labor isthe curve showing the quantities oflabor a firm is willing to hire atdifferent prices of labor. Themarginal revenue product (MRP) oflabor curve is the firm’s demandcurve for labor. Summing individualdemand for labor curves gives themarket demand curve for labor. 48
    • $350 Demand Curve for Labor$280 M RP$210 =d em$140 an d$70 1 2 3 4 5Q 49
    • Derived demand means that afirm demands labor because labor isproductive. Changes in consumerdemand for a product cause changesin demand for labor and for otherresources used to make the product. 50
    • The supply curve of labor is thecurve showing the quantities ofworkers willing to work at differentprices of labor. The market supplycurve of labor is derived by addingthe individual supply curves of labor. 51
    • $350 Supply Curve of Labor Wage Rate per day$280 S$210$140$70 D Quantity of Labor 10 20 30 40 50 52
    • Human capital is theaccumulated people make ineducation, training, experience, andhealth in order to make themselvesmore productive. One explanationfor earnings differences isdifferences in human capital. 53
    • Collective bargaining is theprocess through which a union andmanagement negotiate a laborcontract. 54
    • Monopsony is a labor market inwhich a single firm hires labor.Because the monopsonist faces theindustry supply curve of labor and eachworker is paid the same wage, changesin total wage cost exceed the wage ratenecessary to hire each additionalworker. As a result, the marginal factorcost (MFC) of labor curve lies abovethe supply curve of labor. 55
    • The monopsonist’s wage rate andquantity of labor are determined wherethe MFC equals MRP . Since at thispoint the worker’s MRP is greater thanthe wage paid, the monopsonistexploits the workers. 56
    • A Monopsonist determines its Wage Rate$5$4 Dollars per hour MFC$3 S$2 D (MRP)$1 Quantity of Labor 1 2 3 4 5 57
    • Chapter 11 Quiz ©2000 South-Western College Publishing 58
    • 1. Marginal revenue product measures the increase in a. output resulting from one more unit of labor. b. TR resulting from one more unit of output. c. revenue per unit from one more unit of output. d. total revenue resulting from one more unit is the increase in total revenue to aD. MRP of labor. firm resulting from hiring an additional unit of labor or other variable resource. 59
    • 2. Troll Corporation sells dolls for $10.00 each in a market that is perfectly competitive. Increasing the number of workers from 100 to 101 would cause output to rise from 500 to 510 dolls per day. Troll should hire the 101st worker only when the wage is a. $100 or less per day. b. more than $100 per day. c. $5.10 or less per day. d. none of the above.A. Under perfect competition, the firm hires workers until the MRP equals the wage rate. MRP equals $10 x MP (510 - 500) = $100. 60
    • 3. Derived demand for labor depends on the a. cost of factors of production used in the product. b. market supply curve of labor. c. consumer demand for the final goods produced by labor. d. firm’s total revenue less economic profit. C. If consumers do not purchase goods, there is no MRP and no workers are hired. 61
    • 4. If demand for a product falls, the demand curve for labor used to produce the product will shift a. leftward. b. rightward. c. upward. d. downward.A. If consumers demand for a product decreases and supply remains the constant, the price of the product falls and the MRP (P x MP) decreases. 62
    • 5. The owner of a restaurant will hire waiters if the a. additional labor’s pay is close to the minimum wage . b. marginal product is at the maximum. c. additional work of the employees adds more to total revenue than to costs. d. waiters do not belong to a union.C. If MRP exceeds the wage rate paid waiters, it is profitable for the restaurant to hire more waiters. 63
    • 6. In a perfectly competitive market, the demand curve for labor a. slopes upward. b. slopes downward because of diminishing marginal productivity. c. is perfectly elastic at the equilibrium wage rate. d. is described by all of the above.B. As output expands in the short run, a fixed factor results in diminishing returns causing MP to decrease. Correspondingly, MRP decreases. 64
    • 7. A union can influence the equilibrium wage rate by a. featherbedding. b. requiring longer apprenticeships. c. favoring trade restrictions on foreign products. d. all of the above. e. none of the above.D. Featherbedding and trade protectionism increase the demand for labor. Requiring longer apprenticeship decreases the demand for labor. 65
    • 8. In which of the following market structures is the firm not a price taker in the factor market? a. Oligopoly. b. Monopsony. c. Monopoly. d. Perfect competition.B. Monopsony is a labor market in which a single firm hires labor. For example, the “company town” where everyone works for the same employer. 66
    • 9. The extra cost of obtaining each additional unit of a factor of production is called the marginal a. physical product. b. revenue product. c. factor cost. d. implicit cost.C. The assumption of MFC is that the firm must pay a higher wage to each additional worker as well as to all previously hired workers. 67
    • 10. A monopsonist’s marginal factor cost curve lies above its supply curve because the firm must a. increase the price of its product to sell more. b. lower the price of its product to sell more. c. increase the wage rate to hire more labor. d. lower the wage rate to hire more labor. C. The monopsonist can hire an additional worker only by raising the wage rate for all workers. Therefore, the MFC exceeds the wage rate along the labor supply curve. 68
    • 11. In order to maximize profits, a monopsonist will hire the quantity of labor to the point where the marginal factor cost is equal to a. marginal physical product. b. marginal revenue product. c. total revenue product. d. any of the above.B. The MRP curve is the contribution of each worker to total revenue and MFC the addition to total cost. When MRP > MFC, the firm hires more workers. 69
    • Marginal Factor Cost (MFC) and$10 Marginal Revenue Product (MRP)$8 Dollars per hour Surplus MFC$6$4 Shortage D (MRP)$2 Quantity of Labor 1 2 3 4 5 70
    • 12. BigBiz, a local monopolist, currently hires 50 workers and pays them $6 per hour. To attract an additional worker to its labor force, BigBiz would have to raise the wage rate to $6.25 per hour. What is BigBiz’s marginal factor cost? a. $6.25 per hour. b. $12.50 per hour. c. $18.75 per hour. d. $20.00 per hour.C. Its total cost would increase by $18.75 to hire that additional worker (25 x 50 + 6.25). 71
    • 13. Suppose a firm can hire 100 workers at $8.00 per hour, but must pay $8.05 per hour to hire 101 workers. Marginal factor cost (MFC) for the 101st worker is approximately equal to a. $8.00. b. $8.05. c. $13.05. d. $13.00.C. The firm’s total cost would increase $13.05 to hire the 101st worker (.05 x 100 + 8.05). 72
    • 14. A monopsonist in equilibrium has a marginal revenue product of $10 per worker hour. Its equilibrium wage rate must be a. less than $10. b. equal to $10. c. greater than $10. d. equal to $5.A. Because of its monopoly in the labor market, a monopsony hires fewer workers and pays a lower wage than a firm in a competitive labor market. 73
    • A Monopsonist determines its Wage Rate$5$4 Dollars per hour MFC$3 S$2 D (MRP)$1 Quantity of Labor 1 2 3 4 5 74
    • Internet ExercisesClick on the picture of the book, choose updates by chapter for the latest internet exercises 75
    • END 76