Introduction to Labor Economics Graphs and Tables Handout #1

1. Introduction to Labor EconomicsGraphs and TablesHandout #1

2. Figure A-3.1: Demand Curve for Labor W $60 $50 $40 D L 50 100

3. Figure A-3.2a: Input Market-The Scale Effect W W0 = $50 W1 = $40 D L L0=50 L1 = 100 Input Market

4. Figure A-3.2b: Output Market-The Scale Effect P S S’ P0 P1 D Q Q0 Q1 Output Market

5. Explanation of Figures A-3.2a and A-3.2b • (1) The decrease in wages is a _________in the cost of production and causes the supply of output to __________. • (2) This _________in output causes the firm to __________its demand for all inputs. • This is the scale effect.

6. Summary Table 1

7. Figure A-3.3: An Increase in Demand for Labor W $70 $60 D1 $30 D0 L 200 150 (1) An Increase in Demand (2) An Increase in the Quantity Demanded At Each Wage

8. Figure A-3.4a: Increase in the Demand for Miners W D1 D0 L Market for Miners

9. Figure A-3.4b: Change in Demand for Auto Workers W D0 L Market for Auto Workers

10. Summary Table 2

11. Figure A-3.5: Supply Curve of Labor S W $30 $20 $10 L 50 100

12. Figure A-3.6: An Increase in the Supply of Labor W S0 S1 $35.00 $10.00 $0.00 L 125 175 (1) Increase in Supply (2) Increase in the Quantity Supplied At Each Wage

13. Figure A-3.7: The Market for Labor W S $60.00 $35.00 D $10.00 L 125

14. Figure A-3.8a: Excess Supply of Labor W S $60.00 ES $45.00 $35.00 D $10.00 L 125 175 75 ES = LS - LD =

15. Figure A-3.8b: Excess Supply of Labor W S $60.00 ES $45.00 $40.00 $35.00 D $10.00 L 75 100 125 150 175 New ES = LS - LD =

16. Figure A-3.9a: Excess Demand for Labor W S $60.00 $35.00 $25.00 ED D $10.00 L 75 125 175 ED = LD - LS =

17. Figure A-3.9b: Excess Demand for Labor W S $60.00 $35.00 $30.00 $25.00 ED D $10.00 L 75 100 125 150 175 ED = LD - LS=

18. Figure A-3.10: The Market for Steel Workers W S W0 D L L0

19. Figure A-3.11: The Market for Labor as an Efficient Price Rationing Mechanism W S $60.00 $35.00 D $10.00 L 125

20. Figure A-3.12a: The Market for Labor: Illustrating Employers’ Gains from Trade for One Unit W S Employer Gains For 50thunit $60.00 $50.00 $35.00 D $10.00 L 50 125

21. Figure A-3.12b: The Market for Labor: Illustrating Employers’ Gains from Trade from All Units W S Employer Gains for all units hired a $60.00 h $35.00 k D $10.00 L 150 Employer Gains = Area ahk = Total

22. Explanation for Figure A-3.12a and Figure A-3.12b • 1. In Figure A-3.12a, the difference between the demand price ($50) and the actual price ($35) yields $15 gains from trade (GFT) for the Employer of the 50th unit of labor hired. • 2. In Figure A-3.12b, we must add together all the GFT from all units of labor hired by all Employers to get the total Employers’ GFT. This yields the triangular area which can be thought of as the total gains from trade (GFT) for Employers for hiring 125 workers.

23. Figure A-3.12c: The Market for Labor: Illustrating a Worker’s Gains from Trade W S $60.00 Gains from Trade for the 50thworker $35.00 $20.00 D $10.00 L 50 125

24. Figure A-3.12d: The Market for Labor: Illustrating Workers’ Gains from Trade W S $60.00 Worker Gains from Trade for all 125 workers h k $35.00 D $10.00 g L 125 Total Gains from Trade for Workers = Area hkg

25. Explanation for Figure A-3.12c and Figure A-3.12d • 1. In Figure A-3.12c, the difference between the actual price ($35) and the supply price ($20) yields $15 Rent for the 50th worker. Think of this as the gains from trade by the 50th Worker. • 2. In Figure A-3.12d, we must add together all the Workers’ GFT from all units of labor hired to get the total Workers’ GFT. This yields the triangular area which can be thought of as the entire gains to trade for the 125 Workers hired.

26. Figure A-3.13a: The Market for Labor—Maximizing Gains from Trade W a $60.00 S h $35.00 k D $10.00 g L 125 Area ahg = Area ahk + Area khg = Total Gains from Trade

27. Figure A-3.13b: The Market for Labor-Illustrating Welfare Losses (WL) W a $60.00 S WL = Area bhf $50.00 b c $40.00 h $35.00 k $30.00 e f D $10.00 g D’ L 100 125

28. Explanation of the Welfare Loss 1. Maximizing Gains from Trade with No Tax Workers’ Gains from Trade = Area khg Employers’ Gains from Trade = Area akh Total Gains from Trade = Area ahg 2. Gains from Trade with Tax Workers’ Gains from Trade with Tax = Area abc Employers’ Gains from Trade with Tax = Area efg TaxRev = Area cbfe Total Gains from Trade with Tax + TaxRev = Area abfg WL = Area bhf

29. Figure A-3.13c: The Market for Labor-Illustrating Welfare Losses (WL) W a S b w2 h w0 w1 f D g D’ L L1 L0

30. Explanation of Graph • 1. Initial Conditions • WL = Area bhf • Workers’ Gains from Trade After Tax = Area w1fg • Employers’ Gains from Trade After Tax = Area abw2 • 2. After the Decrease in Taxes/Regulations • New WL = • Workers’ Gains from Trade After Decr Tax = • Employers’ Gains from Trade After Decr Tax =

31. Figure A-3.14a: Towns in Nineteenth Century Britain W W S S W1 W0 D D L1 L L0 L Towns where infant mortality is lower or corporal punishment is not used in factories Towns where infant mortality is higher or corporal punishment is used in factories

32. Figure A-3.14b: Towns in Nineteenth Century Britain S’ NOTE: W1’ - W0’ > W1 - W0 W W S W1’ S W1 S’ W0 W0’ D D L1’L1 L L0 L0’ L Towns where infant mortality is lower or corporal punishment is not used in factories Towns where infant mortality is higher or corporal punishment is used in factories

33. Figure A-3.19: The Volunteer Army S W W S $20K $15K D D L L 3M 50M MILITARY MARKET CIVILIAN MARKET

34. Figure A-3.20: The Draft W W S S’ S $20K 5 $18K 2 1 $15K 3 4 $5K D D L L 1M 3M 5M 48M 50M MILITARY MARKET CIVILIAN MARKET

35. Explanation of Areas in Figure A-3.20 • 1. Areas 1 + 2 + 3 + 4 = Gains to Government • 2. Areas 1 + 2 + 3 + 4 + 5 = Losses to Soldiers • 3. Area 5 = Net Loss = WL • 4. Area 1 = • 5. Area 2 = • 6. Area 3 = • 7. Areas 4 +5 =