Chapter 10 Labor Economics Supply of Labor includes
Chapter 10 Labor Economics
Supply of Labor – includes blue collar, white collar and service workers p Determinants n Wage rate Labor-Leisure choice – Backward bending supply curve p p § § § n The higher the wage the more you want to work up to a point Substitution effect - higher wage you want to work more Income effect – higher wage you want to work less Supply Curve
Demand for Labor p Determinants n Derived demand – demand for an input is taken from the demand of the product it produces Productivity p p Demand Curve n Marginal Physical Product = chg in output/chg in labor p § Diminishing Returns § Area of production Marginal Revenue Product = MPP x MR = additional revenue for one more unit of labor p § Demand Curve for labor
Labor Market p Marginal Factor Cost = wage rate Rule for Hiring n n p p MRP > MFC, hire MRP = MFC, stop
Determinants - Shifting the Curves p Demand n p p Changes in demand for the final product Changes in Productivity Change in the price of substitute factors Change in the price of complementary factors Industry Supply n p p p Working conditions Job flexibility Wage rates at other jobs
Minimum Wage – price floor p n n n Raising causes more unskilled workers to enter the labor market Raising causes less unskilled workers will be demanded in the labor market Unemployment
Organized Labor p Labor unions – associations to improve wages and working conditions n p p p Craft union – represents a skill Industrial union – represents an industry AFL-CIO – both industrial and craft Collective bargaining – process by which unions and management negotiate n p p p Wages Working hours Fringe benefits Working conditions Job security Grievance procedures
Weapons n p p p Strengths n p p Union – strike fund Firm - inventory Goals n p p Restrict the supply of labor or increase the demand for labor Rationing jobs with higher wage rates Benefits of unions n p p p n Strike – work stoppage Lockout – firm prevents returning to work Boycott – unions urge public not to buy the firms product Reduce wage inequality Improve working conditions Reduce profits Increased productivity Voice for the workers Stability in the workforce Union membership is declining
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