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Family4 Prices
 

Family4 Prices

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  • 08/31/09
  • 08/31/09
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Family4 Prices Family4 Prices Presentation Transcript

  • Labor Market Supply and Demand 1. How are wages determined? 2. Why is your salary higher than mine?
  • Hourly Wages of Production Workers for Selected Nations Hourly Pay in U.S. Dollars, 2005 Source: U.S. Bureau of Labor Statistics, 2006 Denmark Germany Switzerland Sweden United Kingdom France United States Australia Japan Canada Italy Korea Taiwan Mexico 0 5 10 15 20 25 30 35 35.47 33.00 30.50 30.40 25.66 24.63 23.65 29.42 21.90 23.82 21.05 13.56 6.38 2.63
  • Hourly Earnings By Industry, 2006 Industry Group Hourly Wage Mining $24.13 Finance, Insurance, Real Estate 24.06 Public Administration 23.44 Transportation, Warehousing, Information, and Utilities 21.60 Manufacturing 20.67 Construction 18.29 Services 18.10 Retail Trade 13.56
  • Private Manufacturing Worker’s Hourly Earnings By State, 2006 State Hourly Wage Connecticut $26.54 New Jersey 25.77 Massachusetts 25.04 New York 20.65 Pennsylvania 20.62 Ohio 19.20 Florida 18.15 Arkansas 16.42 Mississippi 14.65
  • What is a Market? Labor MARKETS FIRMS WORKERS determine Wages and Employment level Market is a mechanism that brings together buyers and sellers BUYERS SELLERS
  • Individual’s Labor Supply Work hrs per week Wage Rate 40 0
    • Choose between work and leisure .
    • Work = time spent on a paying job
    • Leisure = unpaid activities
    • Rest
    • Education
    • Household production
    • Substitution effect
    • Higher wage  higher opportunity cost of leisure  work more, substitute work for leisure.
    • Income effect
    • Higher wage  higher income  work less, enjoy more leisure.
    • Income effect dominates at very high wage rates
    20 30 $20 $40 S L $100 backward bending labor supply curve $150 = number of hours you choose to work
  • Total Work Hrs In the Labor Market Wage Rate 0 $20 $40 S L $60 Market Labor Supply at higher w: 1. Individuals are willing to work more 2. More individuals enter labor market … foregoing household production and leisure "reservation wage“= wage high enough to make you enter labor force Market labor supply curve S L = horizontal summation of S L curves for all individuals in a labor market. Always upward sloping
    • Demand for labor is a derived demand .
      • The demand for hamburgers leads to the demand for hamburger workers.
    • Lower wage rate – firms want to hire more workers
    Total Work Hrs In the Labor Market Wage Rate 0 $20 $40 D L $60 Labor Demand by all Firms Downward sloping
  • Wage and Employment Determined Quantity of Labor Hours or Workers Wage rate
    • at wage W low : excess demand for labor (shortage) Q 2 - Q 1
    • at wage W high :excess supply of labor Q 2 - Q 1 (surplus, unemployment)
    • Equilibrium wage rate W 0 and level of employment Q 0 are at intersection of labor supply and demand.
    S D Q 0 W 0 W low Q 2 Q 1 W high COMPETITIVE LABOR MARKET
  • COMPETITIVE LABOR MARKET
    • Large number of firms trying to hire an identical type of labor
    • Numerous qualified people independently offering their services
    • Neither firms nor workers have control over the market wage
    • Perfect, costless information and labor mobility
  • Changes in Labor Supply Quantity of Labor Hours Wage rate S 1 D Q 0 W 1 W 3 Q 2 Q 1 W 2 S 2 S 3 Other wage rates Wages in other occupations rise - labor supply falls Nonwage income Nonwage income rises - labor supply falls Preferences for work versus leisure Preferences for work increase - labor supply increases Nonwage aspects of job Nonwage aspects of a job improve - labor supply increases Number of workers Increase in number of qualified workers increases labor supply
  • Quantity of Labor Hours Wage rate S D 1 Q 0 W 1 D 2 Q 1 W 2 Changes in Labor Demand D 3 W 3
    • Product demand
    • Higher demand for product - increase in labor demand
    • Productivity
    • Increase in productivity – increase or decrease in labor demand
    • Prices of other resources
    • Increase in the price of a substitute input (e.g.: machines) will increase labor demand.
    • Increase in the price of a complement input (e.g.: fabric) will decrease labor demand.
  • Example: Unions and Wages Quantity of Labor Hours Wage rate
    • Unions increase wages/employment of their members by increasing demand for union labor ( D 0 to D 1 )
    • Methods:
    • Increase product demand
    • Lobby for tariffs on foreign goods
    • Enhance productivity
    • Influence prices of related inputs
    • Lobby for minimum wage hikes
      • raises price of substitutable nonunion labor
    • Requirements for domestic content for autos sold in U.S.
    S D 0 Q 0 W 0 D 1 Q 1 W 1
  • Quantity of Labor Hours Wage rate
    • Unions increase wages of their members by decreasing supply of available labor (S 0 to S 1 )
      • wage rate rises to W 1 employment falls to Q 1
    • Methods:
    • Reduce the number of competitors
      • Lobby for laws that reduce immigration, child labor, length of the workweek.
      • Occupational licensing
      • Limit entry into occupation through long apprenticeships
    S 0 D 0 Q 0 W 0 S 1 Q 1 W 1 Unions and Wages
  • Union Membership, % of Labor Force
  • Union Wage Advantage
  • o D for wives S of wives S 2 P Q 1 Q 2 P 1 P 2 Application to Theories of Marriage: Competitive Marriage Market (men’s view) Quantity of wives Price for a wife= Housework + favors + dowry, etc Decrease in S of wives (modern China) improves women’s bargaining position
  • Theories of Marriage: Competitive Marriage Market (men’s view) o D for wives Quantity of wives S of wives Price Q 1 Q 2 P 1 P 2 D 2 Increase in D for wives (polygyny legalized ?) improves women’s bargaining position
  • Theories of Marriage: Competitive Marriage Market (men’s view) o D 2 Quantity of wives S of wives Price Q 2 Q 1 P 2 P 1 D for wives Decrease in D for wives (war kills men?) worsens women’s bargaining position