Labor Demand Lectures in MicroeconomicsCharles W Upton Why

Labor Demand Lectures in Microeconomics-Charles W. Upton

Why study labor demand supply? • Factor markets are important in themselves. Labor Demand

Why study labor demand supply? • Factor markets are important in themselves. – We are all interested in labor markets – We are particularly interested in one aspect, human capital Labor Demand

Why study labor demand supply? • Factor markets are important in themselves. • The theory says important things about the markets for particular commodities. Labor Demand

Why study labor demand supply? • Factor markets are important in themselves. • The theory says important things about the markets for particular commodities. – We think of many commodities as factors of production. – An automobile is not a commodity per se, but a factor of production for transportation services. Labor Demand

Why study labor demand supply? • Factor markets are important in themselves. • The theory says important things about the markets for particular commodities. • Firms worry a great deal about this topic. Labor Demand

Why study labor demand supply? • Factor markets are important in themselves. • The theory says important things about the markets for particular commodities. • Firms worry a great deal about this topic. • Many important political topics turn on an understanding of factor markets. Labor Demand

The Basics of Factor Demand K Production isoquants describe the relation between inputs and outputs Q 1 Ko K 2 K 1 Qo Lo L 2 L 1 Labor Demand L

Two Key Propositions • Labor has a positive marginal product. • Labor has a diminishing marginal physical product Labor Demand

MPP and VMP Curves Q MPP L Labor Demand

MPP and VMP Curves Q $ VMP = MPP x P MPP L Labor Demand L

The Short Run Demand For Labor • The VMP curve is the short run labor demand curve. $ Labor Demand L

The Short Run Demand For Labor • The VMP curve is $ the short run labor demand curve. wo • When the wage rate is wo, Lo workers are demanded Labor Demand Lo L

The Short Run Demand For Labor $ • The VMP curve is the short run labor demand curve. • When the wage rate wo is wo, Lo workers are w 1 demanded • When the wage rate is w 1, L 1 workers are demanded Labor Demand Lo L 1 L

Change in Price $ • In the price of the product increases, the VMP curve will shift up and wo the firm will hire more workers Labor Demand Lo L 1 L

Change in Price fall in of wages $causes the • In. Athe price the firm toincreases, hire more workers; a product therise VMPincurve priceswcauses the o will shift up and firm to hire more workers. the firm will hire more workers Labor Demand Lo L 1 L

Change in Price fall in of wages $causes the • In. Athe price the firm toincreases, hire more workers; a product Caution: this analysis therise VMPincurve prices causes the will shift up and wo K constant firm to hire more workers. the firm will hire more workers Labor Demand Lo L 1 holds L