Transcript Document

17
CHAPTER
DYNAMIC P OWERP OINT™ S LIDES BY S OLINA L INDAHL
Labor Markets
CHAPTER OUTLINE
The Demand for Labor and the Marginal
Product of Labor
Supply of Labor
Labor Market Issues
How Bad Is Labor Market Discrimination, or
Can Lakisha Catch a Break?
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questions
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Food for Thought….
Some good blogs and other sites to get the juices flowing:
SEE THE INVISIBLE HAND
What determines their pay?
Understanding Wages
Labor has a supply and demand like all
markets.
This market determines each wage rate.
For a detailed comparison of typical
wage rates by occupation in the U.S. see
the Bureau of Labor Statistics page (click
below).
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The Demand for Labor and the Marginal Product
of Labor
A firm is willing to hire a worker when the
worker increases the firm’s revenues more
than the firm’s costs.
The increase in revenue created by hiring an
additional worker is called the Marginal
Product of Labor (MPL).
The increase in costs from hiring an
additional worker is (for a competitive firm)
simply the worker’s wage.
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How Many Workers Should
a Firm Hire?
Firms hire workers that add to profit… so the
rule is:
Firms hire more workers as long as the MPL > wage
And MPL changes as more workers are
hired….
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The Marginal Product of Labor
Number of
Cleaners
Task
Marginal Product of
Labor (MPL per hour)
One
Clean restrooms, once a day
$35
Two
Empty trash
$30
Three
Clean restrooms, twice a day
$24
Four
Wash floors
$20
Five
Pick up outside trash
$16
Six
Clean restrooms, three times a day
$12
Seven
Clean windows
$11
Eight
Remove gum from the bottom of
tables
$8
MP declines as more workers are hired.
If the wage rate is high, not many will be hired, but if it’s low,
more will be hired.
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The Marginal Product of Labor Is
the Firm’s Demand Curve for Labor
Wages
If the Wage = $40, none are hired
40
If the Wage = $27, two are hired
30
If the Wage = $10, seven are hired
Demand Curve for Labor
20
10
1
2
3
4
5
6
7
8
9
10
Cleaners
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What is the marginal product of labor for the fifth worker?
a)
b)
c)
d)
$1,760
$230
$180
$1,885
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MPL
230
180
125
80
50
If the market wage for each worker is $100 per day, how
many workers will the company hire?
a)
b)
c)
d)
4
5
6
7
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Labor Supply Is Upward-Sloping
Joe’s Supply of Office
Cleaning
The Market Supply of Office
Cleaning
If Joe’s wage rises, he
may take more time off…
Although individuals may work
less as wages rise, more
people enter the workforce as
wages increase.
Wage
Wage
$28
$28
$20
$20
$16
$16
$7
$7
40
50
Hours
(millions)
80
200
320
640 Hours
(millions)
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Click below for another look at what motivates us to
work… Dan Pink’s popular TED talk, turned into an
animated story by RSA Animate. (10:48 minutes)
http://www.youtube.com/watch?v=u6XAPnuFjJc
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Labor Market Equilibrium
Equilibrium in the labor market occurs at
the intersection of the market supply and
demand curves from labor.
A firm will hire workers whenever the
marginal product of labor exceeds the
market wage (MPL > w).
Thus, at equilibrium in the labor market,
the marginal product of labor equals the
market wage (MPL = w).
BACK TO
The Labor Market
The Market for Labor
Wages
Supply
wmkt
Demand = MPL
Qmkt
Quantity of Labor
BACK TO
Labor Market Issues:
Wage Differentials
Why do workers in the U.S. usually earn
more than foreign workers for the same job?
One reason: the U.S. is a more productive
economy.
U.S. firms are often producing a product with a
higher market value.
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Labor Market Issues:
Wage Differentials
Another reason why wages differ across
countries is skill levels.
Human Capital refers to tools of the mind, the
stuff in people’s heads that makes them
productive.
Education, training, and experience.
The U.S. often has a much larger human
capital stock than its trading partners and
thus higher wages.
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More Education Means
Higher Wages
Source: Census Bureau 2006
Advanced Degree
$80,000
Wages
60,000
Bachelor’s Degree
40,000
High School Graduate
20,000
No Degree
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The Return to Education
Has Increased
Source: Census Bureau, Goldin and Katz 2008
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All else held constant, wages for low-skill workers are
often higher in the U.S. than in other countries
because
a)
b)
c)
d)
the overall labor supply in the U.S. is lower than in
other countries.
the demand for low-skill workers in the U.S. is very
low compared to other countries.
there is a greater supply of low-skill workers in
other countries than in the U.S.
the U.S. economy is more productive overall than
other economies.
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Labor Market Issues:
Compensating Differentials
The real wage of a job includes not just the
pay but also other non-monetary factors.
A Compensating Differential is a difference in
wages that offsets differences in working
conditions.
Fewer people are willing to work in
dangerous or unpleasant jobs, so the supply
of labor is reduced and wage is increased.
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Riskier Jobs Pay More,
All Else Equal
Supply, high risk jobs
Wages
Higher wage must be paid to
get the same number of
workers
Supply, low risk jobs
wagehigh risk
Fewer workers at
the same wage
wage low risk
Demand
Nhigh risk
Number of Workers
Nlow risk
BACK TO
Labor Market Issues:
Compensating Differentials
Each job has a different combination of
wages, benefits, fun, risk and other
conditions.
People will flock to jobs with higher overall
compensation…
Wages will adjust to these changes in the
labor market so that total compensation
packages equalize…
Therefore, similar jobs must have similar
compensation packages.
BACK TO
Wages Adjust Until Similar Jobs Have Similar
Compensation Packages
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Consider the following: The average person doesn't like
working the night shift, & most companies do their highskilled work during the day. So, firms prefer to hire
workers with more human capital during the day, and
they prefer to hire less-skilled workers at night. Based
on the theories of compensating differentials and
human capital, how would pay for night shift workers
differ from that of day shift workers?
a) Night shift workers would be paid more.
b) Night shift workers would be paid less.
c) They would be paid equally.
d) This cannot be determined without more information.
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SEE THE INVISIBLE HAND
Suppose a new and
cheap technology
increases mine
safety. What do you
predict will happen
to the wages of mine
workers?
Labor Market Issues:
Do Unions Raise Wages?
Are unions driving the wage differentials
across countries?
The evidence seems to be: No.
The U.S. and Switzerland, have much lower levels
of unionization than other countries in Western
Europe but have very similar wage levels.
It is true that wages in unionized jobs tend to
be higher than those in non-unionized jobs.
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By Reducing the Supply of Labor a Union Can
Increase Wages
Supply with union
Wages
Supply without union
Wagewith
Wageno
By restricting membership and
threatening to strike unless
employers hire union labor,
unions reduce the supply of
labor available to an industry.
union
union
Demand
Nwith union
Number of Workers
Nno union
28
BACK TO
How Bad Is Labor Market Discrimination?
How often
do you
discriminate?
Does the
market erase
discrimination?
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Types of Discrimination
1. Statistical Discrimination is using
information about group averages to
make conclusions about individuals.
In a dark alley, you hear footsteps… your
reaction depends on who it is…
An elderly lady walking her dog?
An angry tattooed younger man muttering to
himself?
Same man with a baby?
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Statistical Discrimination
Is this discrimination rational?
Markets tend to develop shortcuts to
judging job candidates- with some
errors.
Judging a book by its cover doesn’t always
work.
Profit-seeking employers have the
greatest incentive to overcome
unfairness.
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Types of Discrimination
Preference-Based Discrimination is based
on a plain, flat-out dislike of some group
of people due to race, religion, gender,
etc.
There are three different kinds of
preference-based discrimination:
1. Discrimination by Employers
2. Discrimination by Customers
3. Discrimination by Employees
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Preference-Based Discrimination
Discrimination by Employers:
Fortunately, this kind of discrimination tends
to be broken down by market forces.
Employer discrimination can be expensive to
the employer.
Wages for the discriminated group of workers
will be lower, so the employer may be giving
up considerable profits to indulge its taste for
discrimination.
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Preference-Based Discrimination
Discrimination by Customers:
When it is customers driving the
discrimination, firms are reluctant to hire
workers from the discriminated groups.
Firms that employ these workers may lower
costs on account of the lower wages, but the
firms may also earn lower revenues as
customers avoid their establishments.
Bigoted customers create an economic
incentive for firms to discriminate.
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Preference-Based Discrimination
Discrimination by Employees:
Discrimination can also arise from workers
who do not wish to mix with people from
different groups.
The profit incentive doesn’t necessarily break
down this sort of discrimination.
Employee-based discrimination is selfreinforcing and hard to identify:
Are fewer women applying in male-dominated
careers because of discrimination by other
employees?
B
A CK
T O
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Employee discrimination is difficult to
overcome because
a)
b)
c)
d)
no one can really tell when it is happening.
it is required by law.
it is reinforced by the profit incentive,
meaning that firms find it more profitable to
discriminate than to not.
it does not actually harm anyone.
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Preference-Based Discrimination
Discrimination by Government:
Governments can be part of the problem
and actually promote labor market
discrimination.
E.g. During the era of apartheid in South Africa
from 1948-1994, Black South Africans:
 Had to live in areas separate from whites.
 Could not compete with whites for jobs.
 Could not vote.
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Do Markets Crush Discrimination?
Market forces bring different groups into
contact with each other, reducing distrust.
Economic growth generally reduces
discrimination.
In the long run, no successful market
economy has succeeded in maintaining
formal segregation on a widespread
basis.
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Evidence of Persistent Discrimination?
Explain why the data seem to show that:
Tall people earn more than short people.
Good-looking people earn more too.
People with African-American-sounding
names got 50% fewer job interviews (but
equal long-run earnings) than people with
neutral names.
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Think-Pair-Share: Is it a good idea for a
human resources director to visit the
Facebook pages of potential
employees?
Is it fair to cut out the applicants whose
pictures show them holding beer?
Whose pages contain typos?
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Are sweatshops bad or good? Click below for
an ABC news clip on the debate. (6:17 minutes)
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How might the following factors affect Joe's office
cleaning labor supply?
I.
The government raises Joe's income tax rate.
II.
The price of comfortable work shoes falls
dramatically. Now, his feet won't ache nearly as
much after a full day of work.
III. While in Las Vegas for the weekend, Joe wins a
$1 million jackpot.
a) I and II will increase supply and III
b) III will increase supply and I and II
c) II will increase supply and I and III
d) I will increase supply and II and III
will
will
will
will
decrease
decrease
decrease
decrease
supply.
supply.
supply.
supply .
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