Unit 3Labor Markets

Labor Demand

The Labor MarketLabor Market is a collection of workers interested in selling their

services and firms interested in hiring them.

Firms pay workers an annual salary or an hourly wage in exchange for their work.

When the amont of time each person works is standard (40 hours/week or 8 hours/day) the quantity of labor is measured by the number of workers hired.

If the hours worked is not standard (some workers work more than others) you can measure the number of hours that workers spend working for the firm. One hour of work by one worker is called one labor hour.

Workers=employees

Those that hire employees=employers

Perfectly Competitive Labor Market

There are many firms and workers, and no individual firm can influence the market wage.

Wage is determined by the equilibrium of supply and demand in the labor market.

Ex) If a restaurant tried to hire dishwashers in a perfectly competitive labor market for less than the wage paid at other restaurants, the workers would head for one of the many other restaurants that pay more.

*Only by matching the market wage can the restaurant attract the dishwasher it needs.

Who should be hired? Who should be fired?

A firm will only hire you if the value of what you produce is more than the amount the firm must pay to hire you.

If the value of what an existing employee produces falls below the cost of employing him/her then the firm will let the employee go.

Employers decide how many workers to hire by hiring more and more until the marginal benefit of another worker falls to equal the marginal cost.

There are 3 lawn mowers for the workers to share. First 3 workers have full use of lawn mowers and are at full productivity. Next workers must share the resource.

Marginal Product of Labor- The additional output produced by the last worker hired.

Value of Marginal Product of Labor- Marginal Product of labor X Price charged per lawn mowed ($40)

Labor Demand Curve

Labor Demand Curve- indicates how much labor the employer would hire at each wage.

Firms hire until the wage=the value of the marginal product of labor

Firm’s desire to hire more workers at a lower wage results in a downward sloping labor demand curve.

How firms respond to wage changes

Most workers think of higher wages as a good thing, but the labor demand curve shows that when the wage increases, the movement upward along the demand curve reduces the quantity of workers demanded.

Wage increase in a labor market with elastic labor demand can cause considerable unemployment. Wage decrease in a market with inelastic labor demand can fail to encourage the desired increase in employment.

Warm-up: 3/2/16

If you were a ‘Shark’, which product would you have invested in and why?

Labor Supply and Labor Market Equilibrium

To work or not to work? That is the question...

Every adult must answer two questions:

Whether or not to work at all?

If yes, how much to work?

Reservation wage--the lowest wage a worker would accept for a job.

Wage is greater than or equal to reservation wage then the worker accepts the job. If wage is less than reservation wage the worker would not accept the job.

How much to work?

There are many job options available. There are full-time and part-time jobs, one worker can hold multiple jobs, and many jobs offer flexible work hours.

Higher wages encourage you to substitute away from spending time on leisure activities and toward spending more time working.

Substitution effect: $8 hour babysitting job. To get an hour of leisure time you must give up $8 you could earn babysitting. If the wage increased to $12/hour you would give up $12 for every hour of leisure.

Income effect: When workers earn more, they increase their consumption of normal goods. Leisure is a normal good, so people demand more of it as their income increases. Higher income you can afford to take more days off.

The Market Labor Supply CurveThe Market Labor

Supply Curve- shows the total number of hours workers would be willing to supply at each wage.

The Skills of Workers and the Quality of Jobs

Investing in Human CapitalHuman Capital- the skills and knowledge of workers.

Investments in education tend to lead to higher incomes, which justifies the cost.

The more degrees you earn in school, the more money you are likely to earn later on.

Skills & Technology

New technologies help shape the types of human capital most in demand.

Technology has replaced many jobs in industries that include farming, banking, retail, sales, manufacturing, etc.

Advances in communication technology (apps, smartphones, teleconferencing)

Compensating Wage DifferentialsEarnings are not the only thing that matter to workers.

Working conditions

Hazards

Prestige

Difficulty

Fringe Benefits

If you don’t care about quality of jobs, maybe you’ll care about this...WOMEN:

1. Physical Therapist

2. Interior Designer

3. Founder/Entrepreneur

4. PR/Communications

5. Teacher

6. College Student

7. Speech Language Pathologist

8. Pharmacist

9. Social Media Manager

10. Model

11. Dental Hygienist

12. Nurse

13. Flight Attendant

14. Personal Trainer

15. Real Estate Agent

MEN:

1. Pilot

2. Founder/Entrepreneur

3. Firefighter

4. Doctor

5. TV/Radio Personality

6. Teacher

7. Engineer

8. Model

9. Paramedic

10. College Student

11. Lawyer

12. Personal Trainer

13. Financial Advisor

14. Police Officer

15. Military

The 15 Sexiest Jobs, According to TinderWhat you do for a living may be the difference between a swipe left and a swipe right.

Why it Matters: Your Value in the Labor Market Article/Discussion

Occupational Outlook Handbookhttp://www.bls.gov/ooh/a-z-index.htm 1)Individually2)Pick a job3)1 paragraph about the factors that influence the supply and demand for labor of that occupation