The Demand for Labor 3 Governed by supply and demand Derived demand Labor services = inputs into the production of other goods The versatility of supply and demand 4 Wage of a
Trang 1The Markets for Labor
Chapter 6
By Tran Thi Kieu Minh, MSc
Microeconomics
Contents
Demand for Labor
Supply for Labor
Equilibrium in the Labor Market
©Kieu Minh, FTU, 2014
2
1 The Demand for Labor
3
Governed by supply and demand
Derived demand
Labor services = inputs into the production of other
goods
The versatility of supply and demand
4
Wage
of apple pickers
Price
of apples
The basic tools of supply and demand apply to goods and to labor services Panel (a) shows how the supply and demand for apples determine the price of apples Panel (b) shows how the supply and demand for apple pickers determine the wage of apple pickers
Quantity
of apples
0
(a) The market for apples
Quantity of apple pickers
0
(b) The market for apple pickers
Supply
Demand
Q
P
Supply
Demand
L W
Trang 2The Demand for Labor
5
Firm is competitive in both markets
Price taker
Pay the market wage
Get the market price for goods
Quantity of goods to sell
Quantity of labor to hire
Firm is profit-maximizing
The Demand for Labor
6
VMPL = MPL x P output
Marginal revenue product (MRPL)
Additional revenue from hiring one additional unit of labor
Diminishes as the number of workers rises
labor-demand curve
For a competitive, profit-maximizing firm
The value of the marginal product of labor
3
MRPL
Quantity of labor
0 Profit-maximizing quantity
Market
wage
Value of marginal product (demand curve for labor)
Competitive, profit-maximizing firm hires workers up to the point where Value of the marginal product of labor = wage
The Demand for Labor
8
The output price
Technological change
Can raise MPL: increase demand for labor
Can reduce MPL: decrease demand for labor
Supply of other factors
Affect marginal product of other factor
Trang 32 The Supply of Labor
9
Reflects how workers’ decisions about the labor-leisure
trade-off
The Individual Supply of Labor
The Supply of Labor
The market labor supply
curve
Upward – sloping curve
What causes the
labor-supply curve to shift?
Changes in tastes
Changes in alternative
opportunities
Immigration
Wage (price of labor)
Quantity of labor
0
Supply
3 Equilibrium in the Labor Market
12
Adjusts to balance the supply & demand for labor
Equals the value of the marginal product of labor
Change the equilibrium wage
Change the value of the marginal product by the same amount
Trang 4Equilibrium in a labor market
4
13
Wage
(price of
labor)
Like all prices, the price of labor (the wage) depends on supply and demand Because the
demand curve reflects the value of the marginal product of labor, in equilibrium workers receive
the value of their marginal contribution to the production of goods and services
Quantity of labor
0 Equilibrium
employment, L
Equilibrium
wage, W
Demand
Supply
A shift in labor supply
5
14
Wage (price of labor)
When labor supply increases from S1 to S2, perhaps because of an immigration of new workers, the equilibrium wage falls from W1 to W2 At this lower wage, firms hire more labor, so employment rises from L1 to L2 The change in the wage reflects a change in the value of the marginal product of labor: With more workers, the added output from an extra worker is smaller
Quantity of labor
0 L1
W1
Demand
Supply, S1
S2
W2
L2
1 An increase in labor supply
2 reduces the wage
3 and raises employment
A shift in labor demand
6
Wage
(price of
labor)
When labor demand increases from D1 to D2, perhaps because of an increase in the price of
the firm’s output, the equilibrium wage rises from W1 to W2, and employment rises from L1 to L2
Quantity of labor
0 L1
W1
Demand, D1
Supply
D2
W2
L2
1 An increase in labor demand
2 increases
the wage
3 and increases employment
Productivity and wages
16
produce goods and services
the marginal product of labor
Highly productive workers are highly paid
Less productive workers are less highly paid
Are better off than workers in previous generations
Trang 5Productivity and wage growth in the United States
2
17
Time period Growth rate of productivity Growth rate of real wages
1959-2006
1959-1973
1973-1995
1995-2006
2.1%
2.8 1.4 2.6
2.0%
2.8 1.2 2.5
Growth in productivity is measured here as the annualized rate of change in output per
hour in the nonfarm business sector Growth in real wages is measured as the
annualized change in compensation per hour in the nonfarm business sector divided by
the implicit price deflator for that sector These productivity data measure average
productivity—the quantity of output divided by the quantity of labor—rather than
marginal productivity, but average and marginal productivity are thought to move
closely together