Transcript Slide 1
Work and the Labor Market
Work banishes those three great evils: boredom, vice, and poverty.
— Voltaire
Work and the Labor Market
• A
labor market
is a factor market • - individuals supply labor services for wages • - firms demand labor services •
Incentive effect -
how much a person will change hours worked in response to the wage rate 19-2
Supply Positively Related to Price
The short-run supply elasticity is determined by how easily the resource can be transferred from one use to another, or in the short run.
resource mobility. If resources are highly mobile then the supply curve will be elastic even The supply of a resource will be more elastic in the long run than the short run.
In the long run, investment can increase the supply of both physical and human resources.
Resource Supply
Resource price As a resource’s price increases, individuals have a greater incentive to supply it.
Thus, a positive relationship will exist between a resource’s price and the quantity supplied in the market.
P 2 P 1 A B S Q 1 Q 2
Quantity
Income Tax, Work, and Leisure
• • • •
Taxes reduce net wage and incentive to work
An increase in the marginal tax rate is likely to reduce the quantity of labor supplied EU countries, which have relatively high marginal tax rates, are struggling with the problem of providing incentives for people to work For welfare recipients, the tax penalties for working create a great incentive to not work or to work in the underground economy 19-5
The Elasticity of Labor Supply
• • •
Elasticity of labor supply depends on:
• Individuals’ opportunity cost of working • • • The type of labor market being discussed The elasticities of individuals’ supply curve Individuals entering and leaving the labor market Employees prefer an inelastic labor supply, but employers prefer an elastic labor supply Estimates for labor supply elasticity are about 0.1 (inelastic) for heads of household and 1.1 (elastic) for secondary earners
Time and Resource Supply Elasticity
The supply of CPA services for example Resource price
S
If CPA wages increase from P
1
to
P Q 2 1
, the short-run response will be an increase in CPA services from to Q
2
. Some CPAs work more and some come out of retirement.
S lr B C P 2
Given time, supply of the resource (CPAs) becomes more elastic. (S
sr S lr
) as more individuals choose this field of training.
P 1 A
At the higher wage P
2 , Q 3
CPA services are supplied to the market. The long-run supply of a resource is almost always more elastic than short-run supply.
Quantity
Q 1 Q 2 Q 3
• • •
Immigration and the International Supply of Labor
International limitations on the flow of people play an important role in elasticities of labor supply Large differentials in wages mean that many people from low wage countries would like to move to high wage countries to earn higher wages EU countries have open borders among member countries, allowing the flow of labor between low and high wage countries
Derived Demand for Resources
The
demand for resources
derived the products that the resources help produce.
is from the demand for A service station hires mechanics because of their customers’ demand for repair services .
Demand Inversely Related to Price
Substitution in production: If one input becomes more expensive, producers will shift to lower-cost inputs.
The better the substitute inputs, the more elastic the demand for the resource.
Substitution in consumption: A high resource prices raises the product price and consumers substitute other goods.
The more elastic product’s demand, the more elastic is the demand for the resource .
The Demand for Resources
As a resource price increases, producers will: use
substitute
resources, or face higher costs These lead to higher prices and a reduction in
consumption.
At the lower output, firms use less of the resource that increased in price.
P 2 P 1
Both contribute to the inverse relationship between the price and quantity demanded of a resource.
B A D Q 2 Q 1
Quantity
Hiring Resources
Hire up to where Marginal Revenue Product =
Resource Price MRP =
Marginal
* Remember – Marginal revenue =
change in change in
output variable input
=
change in change in
revenue output
Numbers, Numbers, Numbers
A firm sells its product for $200 each (4).
The
marginal product
(3)
shows how output
changes
an additional worker affects the firm’s total revenue.
Variable factor
(1)
0 1 2 3 4 5 6 7 Output
(per week)
(2)
0.0
5.0
9.0
12.0
14.0
15.5
16.5
17.0
Marginal Product
=
change in
(2)
change in
(1)
(3)
---- 5.0
4.0
3.0
2.0
1.5
1.0
0.5
Price
(per unit)
(4)
$200 $200 $200 $200 $200 $200 $200 $200 Total Revenue
= (2) * (4) (5)
$ 0 $1,000 $1,800 $2,400 $2,800 $3,100 $3,300 $3,400
=
MRP
(3) * (4) (6)
--- 1000 800 600 400 300 200 100
Units of Labor
1 2 3 4 5 6 7
Total Output
14 26 37 46 53 58 62
Marginal Product Product Price
$5 $5 $5 $5 $5 $5 $5
Total Revenue MRP
Units of Labor
1 2 3 4 5 6 7
Total Output
14 26 37 46 53 58 62
Marginal Product Product Price 14 12 11 9
$5 $5 $5 $5
7 5 4
$5 $5 $5
Total Revenue 70 130 185 230 265 290 310 MRP 70 60 55 45 35 25 20
With time, the demand for a resource becomes more elastic (
D sr D lr
): the easier it is to switch the more elastic the demand for the products the resource helps to produce.
The long-run demand for a resource is almost always more elastic than demand in the short-run.
P 2 P 1 C B A Q 3 Q 2 Q 1 D lr D sr
Quantity
•
Four factors that influence the elasticity of demand for labor are:
• • • • The elasticity of demand for the firm’s good The relative importance of labor in the production process The possibility, and cost, of substitution in production The degree to which the marginal productivity falls with an increase in labor
W e
Equilibrium in the Labor Market
Wage Rate Supply of Labor Demand for Labor Q of Labor
Equilibrium is where the
quantity demanded of labor is equal to the quantity supplied
Equilibrium wage is W
e
Equilibrium quantity is Q
e Q e
19-18
1.
Shifting Resource Demand
Changes in
product demand
change in the same direction.
2.
Changes in the
productivity of a resource
- If productivity rises, the demand rises.
3.
Changes in the
price of related inputs
an increase in a substitute input price -The following
decrease
resource demand: a decrease in a substitute input price an increase in a complimentary input price
• •
Shift Factors of Demand
Technology both increases/decreases the demand for labor International competitiveness may increase the demand for labor in the U.S. in spite of lower wages in foreign countries because: • • • • • U.S. workers may be more productive Transportation costs are lower Foreign companies can avoid trade restrictions Production techniques are not compatible with foreign social institutions Focal point phenomenon - a company moves to a country because others have already moved there
The Role of Other Forces in Wage Determination
• Real-world labor markets are filled with examples of individuals or firms who resist these supply and demand pressures through; • • • Labor unions Professional associations Agreements among employers
W 1 W e Wage Rate
Labor Market in Action
Supply of Labor
The effect of an above equilibrium wage is an excess supply of labor and jobs must be rationed
Excess supply of labor Q D Q S Demand for Labor Q of Labor
W 0 W 1 Wage Rate
Labor Market in Action
S 0 S 1
The effect of an increase in the supply of labor will cause: Equilibrium wage to decrease Equilibrium quantity to increase
D Q of Labor Q 0 Q 1
Imperfect Competition and the Labor Market
•
Monopsony
is a market in which a single firm is the only buyer of labor • • If a monopsonist hires another worker, the equilibrium wage will rise The marginal factor cost is above the supply curve • A
bilateral monopoly
is one in which a single seller of labor (a union) faces a single buyer of labor 19-24
W U W C W M W
Monopsony, Union Power, and the Labor Market
A Marginal Factor Cost S MR Q U Q M Q C Q D
In a
competitive labor market
, equilibrium is
W C
and
Q C Monopsony A
hired,
Q M
equilibrium is at point where fewer workers are , and the wage,
W M
A
union
pushes for a higher wage,
W U
, and a lower quantity of workers,
Q U
In
bilateral monopoly
the wage will be between
W U
and
W M
quantity between
Q U
and
Q M
and
Fairness and the Labor Market
• • • • Social and political views of fairness play a role in wage determination
Efficiency wages
are wages paid above the going market wage to keep workers happy and productive
Comparable worth laws
mandate comparable pay for comparable work
Living wage laws
require employers to pay a worker a wage that would support a family of four at the poverty level
Job Discrimination and the Labor Market
• The three types of demand-side discrimination are: • Discrimination based on individual characteristics that will affect job performance (young salespeople) • • Discrimination based on correctly-perceived statistical characteristics of the group (younger workers) Discrimination based on individual characteristics that do not affect job performance or are incorrectly perceived (older workers)
Institutional Discrimination
• • •
Institutional discrimination -
job makes it difficult for certain groups of individuals to succeed the structure of the Institutions can have built-in discrimination Institutional factors have an effect on things such as pay, but workplace discrimination also explains a portion
Discrimination 1. Wage Discrimination
Lower wages for minorities
2. Employment Discrimination
Fewer jobs available for minorities
Wage Discrimination
When majority workers are preferred to minority workers
(or men to women)
,
demand
for minority workers is reduced.
Minority workers receive lower wages.
Impact of Wage Discrimination
Wages Employment discrimination causes the decrease.
demand
for minority services to The result is lower
demand
, and the equilibrium wage will be at a lower level, W
w
>
W m
.
W w W m B A S D whites D minorities
Employment
Q m Q w
Employment Discrimination
Discriminated workers are restricted in the types of jobs and occupations they enter.
Supply
in the
unrestricted
jobs will increase, causing When the supply ( of minorities ) to an occupation is restricted, the wages ( of white males ) will rise.
Wages Wages
S u S r W r W n W n W u D u
Quantity
D u
Quantity
Employment Discrimination
Discrimination is costly to employers.
When employers
can
hire equally productive minorities profit motive gives them a strong incentive to do so.
Employers who ignore minority and gender status than employers who discriminate .
Evolution of Labor Markets
•
Labor markets as we now know them developed in the 1700s and 1800s
• • • The political and social rules pushed wage rates down to subsistence levels, work weeks were long, and working conditions were poor Labor laws and unions have evolved in response to workers’ political pressure Laws, such as minimum wage or child labor laws, play an important role in the structure of labor markets
Unions and Collective Bargaining
• In the late 1800s and early 1900s, the government supported business’ opposition to workers’ right to strike • • In the 1930s the Wagner Act guaranteed workers the right to form unions, strike, and bargain collectively In 1947 the Taft-Hartley Act was passed limiting union activities and also provided for: • States could pass right-to-work laws • • • Closed shops were illegal Union shops were allowed Prohibited secondary boycotts 19-35
Unions and Collective Bargaining
• • • Unions were weakened in 1981 when Ronald Reagan fired striking air traffic controllers Union membership has declined in recent years partly due to the unions’ successes Today, nearly 50% of union members work for the government • These unions are becoming stronger and will likely be exerting their influence 19-36
Changes in Union Membership, 1895-2007
Percent of the Labor Force
30 25 20 15 After the Depression in the 1930s, unions grew in importance, but since the mid-1970s the importance of unions has declined 10 5 0
1930 1940 1950 1960 1970 1980 1990 2000 2010
19-37
The 10 Fastest Growing US Occupations in Percentage Terms, 2000-2010 Occupation Thousand Jobs Percentage 2000 2010 Increase 380 760 100% Computer software engineer, applications Computer support specialists Computer software engineers, systems Computer systems administrators Data communication analysts Desktop publishers Database administrators Personal and home care aides Computer system analysts Medical assistants 506 317 229 119 38 106 414 431 329 996 601 416 211 63 176 672 689 516 97 90 82 77 66 66 62 60 57
Occupation Railroad brake, signal, and switch operators Shoe machine operators Telephone operators Radio mechanics Loan interviewers Motion picture projectionists Meter readers Rail track layers Farmers and ranchers Shoe and leather workers Thousand Jobs Percentage 2000 2010 Increase 22 9 -59% 9 54 7 139 11 49 12 1294 19 4 35 5 101 8 36 9 965 15 -56 -35 -29 -27 -27 -27 -25 -25 -21