Labor Market Supply and Demand: Wages, Employment, Unions
1. Labor Market Supply and Demand 1. How are wages determined? 2. Why is your salary higher than mine?
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. 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. 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. 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
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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 "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
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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
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. 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. 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