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 Stat...
Hourly Earnings By Industry, 2006 Industry Group Hourly Wage Mining $24.13 Finance,  Insurance, Real Estate  24.06 Public ...
Private Manufacturing Worker’s Hourly Earnings By State, 2006 State Hourly Wage Connecticut $26.54 New Jersey 25.77 Massac...
What is a Market? Labor MARKETS FIRMS WORKERS determine Wages and Employment level Market is a mechanism that brings toget...
Individual’s Labor Supply  Work hrs per week Wage Rate 40 0 <ul><li>Choose between   work   and   leisure . </li></ul><ul>...
Total Work Hrs  In the Labor Market Wage Rate 0 $20 $40 S L $60 Market Labor Supply at higher w: 1. Individuals are willin...
<ul><li>Demand for labor is a   derived demand .  </li></ul><ul><ul><li>The demand for hamburgers leads to the demand for ...
Wage and Employment Determined Quantity of Labor Hours or Workers Wage rate <ul><li>at wage W low : excess demand for labo...
COMPETITIVE LABOR MARKET <ul><li>Large number of firms trying to hire an identical type of labor </li></ul><ul><li>Numerou...
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 ...
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 <ul><li>Product demand </li></...
Example: Unions and Wages Quantity of Labor Hours Wage rate <ul><li>Unions increase wages/employment of their members by i...
Quantity of Labor Hours Wage rate <ul><li>Unions increase wages of their members by decreasing supply of available labor (...
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 vi...
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 ...
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 ...
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Family4 Prices

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  • 08/31/09
  • 08/31/09
  • 08/31/09
  • 08/31/09
  • 08/31/09
  • 08/31/09
  • 08/31/09
  • Family4 Prices

    1. 1. Labor Market Supply and Demand 1. How are wages determined? 2. Why is your salary higher than mine?
    2. 2. 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
    3. 3. 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
    4. 4. 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
    5. 5. 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
    6. 6. Individual’s Labor Supply Work hrs per week Wage Rate 40 0 <ul><li>Choose between work and leisure . </li></ul><ul><li>Work = time spent on a paying job </li></ul><ul><li>Leisure = unpaid activities </li></ul><ul><li>Rest </li></ul><ul><li>Education </li></ul><ul><li>Household production </li></ul><ul><li>Substitution effect </li></ul><ul><li>Higher wage  higher opportunity cost of leisure  work more, substitute work for leisure. </li></ul><ul><li>Income effect </li></ul><ul><li>Higher wage  higher income  work less, enjoy more leisure. </li></ul><ul><li>Income effect dominates at very high wage rates </li></ul>20 30 $20 $40 S L $100 backward bending labor supply curve $150 = number of hours you choose to work
    7. 7. 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 &quot;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
    8. 8. <ul><li>Demand for labor is a derived demand . </li></ul><ul><ul><li>The demand for hamburgers leads to the demand for hamburger workers. </li></ul></ul><ul><li>Lower wage rate – firms want to hire more workers </li></ul>Total Work Hrs In the Labor Market Wage Rate 0 $20 $40 D L $60 Labor Demand by all Firms Downward sloping
    9. 9. Wage and Employment Determined Quantity of Labor Hours or Workers Wage rate <ul><li>at wage W low : excess demand for labor (shortage) Q 2 - Q 1 </li></ul><ul><li>at wage W high :excess supply of labor Q 2 - Q 1 (surplus, unemployment) </li></ul><ul><li>Equilibrium wage rate W 0 and level of employment Q 0 are at intersection of labor supply and demand. </li></ul>S D Q 0 W 0 W low Q 2 Q 1 W high COMPETITIVE LABOR MARKET
    10. 10. COMPETITIVE LABOR MARKET <ul><li>Large number of firms trying to hire an identical type of labor </li></ul><ul><li>Numerous qualified people independently offering their services </li></ul><ul><li>Neither firms nor workers have control over the market wage </li></ul><ul><li>Perfect, costless information and labor mobility </li></ul>
    11. 11. 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
    12. 12. 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 <ul><li>Product demand </li></ul><ul><li>Higher demand for product - increase in labor demand </li></ul><ul><li>Productivity </li></ul><ul><li>Increase in productivity – increase or decrease in labor demand </li></ul><ul><li>Prices of other resources </li></ul><ul><li>Increase in the price of a substitute input (e.g.: machines) will increase labor demand. </li></ul><ul><li>Increase in the price of a complement input (e.g.: fabric) will decrease labor demand. </li></ul>
    13. 13. Example: Unions and Wages Quantity of Labor Hours Wage rate <ul><li>Unions increase wages/employment of their members by increasing demand for union labor ( D 0 to D 1 ) </li></ul><ul><li>Methods: </li></ul><ul><li>Increase product demand </li></ul><ul><li>Lobby for tariffs on foreign goods </li></ul><ul><li>Enhance productivity </li></ul><ul><li>Influence prices of related inputs </li></ul><ul><li>Lobby for minimum wage hikes </li></ul><ul><ul><li>raises price of substitutable nonunion labor </li></ul></ul><ul><li>Requirements for domestic content for autos sold in U.S. </li></ul>S D 0 Q 0 W 0 D 1 Q 1 W 1
    14. 14. Quantity of Labor Hours Wage rate <ul><li>Unions increase wages of their members by decreasing supply of available labor (S 0 to S 1 ) </li></ul><ul><ul><li>wage rate rises to W 1 employment falls to Q 1 </li></ul></ul><ul><li>Methods: </li></ul><ul><li>Reduce the number of competitors </li></ul><ul><ul><li>Lobby for laws that reduce immigration, child labor, length of the workweek. </li></ul></ul><ul><ul><li>Occupational licensing </li></ul></ul><ul><ul><li>Limit entry into occupation through long apprenticeships </li></ul></ul>S 0 D 0 Q 0 W 0 S 1 Q 1 W 1 Unions and Wages
    15. 15. Union Membership, % of Labor Force
    16. 16. Union Wage Advantage
    17. 17. 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
    18. 18. 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
    19. 19. 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

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