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2. Review. MB of labor to competitive firm:P x MPLMC of Labor = WHire until W = P x MPLWages equal Consumers' value of worker's contribution. < ???????????. 3. Demand and Supply of Labor. . . Units of L per period. W per period. . . Demand: P x MP. Supply: W. INDUSTRY . < ???????????. 4. Deman
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1. 1 ????? 19(Chapter 19) ????????????????????????
The Economics of Labor Markets
2. 2 Review MB of labor to competitive firm:
P x MPL
MC of Labor = W
Hire until W = P x MPL
Wages equal Consumers’ value of worker’s contribution
3. 3 Demand and Supply of Labor
4. 4
5. 5 How to raise wages Increase Physical Capital Per Worker
Increase Human Capital Per Worker
both increase MPL
6. 6 Example Black Plague wipes out 1/3rd of the workforce but left capital unharmed
Real wages doubled
7. 7 How to raise wages Increase productivity of all inputs
by research and development
better management techniques
better marketing
8. 8 Minimum Wages Price Floor
rises wages of those who keep job
hurts some a lot more because they lose their job
9. 9
10. 10
11. 11
12. 12
13. 13 Minimum Wage creates a labor shortage
General Result:
every 10% increase in the wage decreases employment between 1% and 3%
14. 14 Labor Supply Recall that a higher wage has two effects on labor supply
A substitution effect that makes people want to work more hours
An income effect that makes people want to work fewer hours
15. 15 Empirical Studies Single People
Income Effect same but opposite effect as Substitution Effect
Higher Wage has little effect on labor supply!
16. 16 Married Males Married Males: Income Effect Stronger!
Higher Wage ==> Work Less Hours
Note: talking about market wage in all jobs going up!
17. 17 Married Females Married Females: Substitution Effect Stronger
Higher Wage ==> Work More Hours!
18. 18 Results also apply to lifetime work
Higher wages cause married males to start work later and retire earlier
19. 19 Pure Income Effect About the same for everyone
Give most people more income (say by winning a lottery), all will cut back work by about the same %
100% increase in income ==> 16% fewer hours worked
20. 20 Labor Unions In competitive markets, same effect as minimum wage
Every 10% increase in wage, about 3% lose jobs
Raise wages about 10 to 30%
But lower wages of nonunion workers
21. 21 Monopsony Unions usually organize monopolies or oligopolies
Employers are often monopsonies
Result: unions can raise wage over some range without reducing employment
22. 22 Unions want to organize industries where demand for labor is inelastic
can raise wages without reducing employment too much
23. 23 What Is Ideal Industry? Demand for Output inelastic
Hard to substitute other inputs for labor
Labor is a small fraction of total cost
this one is key: unions tend to be in capital-intensive industries
24. 24 Small Fraction of Cost Let Share = labor’s share of total cost
% D P = Share x % D W
10% increase in W
if Share = 0.25, P up 2.5%
if Share = 0.80, P up 8%