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Lecture Economics (9/e): Chapter 17 - David C. Colander

Chapter 17 - Work and the labor market. In this chapter you will learn: Explain how the supply of labor is determined, explain how the demand for labor is determined, explain how wages are determined by both the supply and demand for labor in combination with social forces, contrast four types of discrimination that occur in labor markets. | Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 1 Chapter Goals Explain how the supply of labor is determined Explain how wages are determined by both the supply and demand for labor in combination with social forces Explain how the demand for labor is determined Contrast four types of discrimination that occur in labor markets Summarize the evolving labor laws and the implications of the labor market analysis for you 2 The Supply of Labor The higher the wage, the higher the quantity of labor supplied. The labor supply curve has a positive slope because the opportunity cost of not working increases as wages get higher Wage Rate Q of Labor Supply of Labor 3 Real Wages and the Opportunity Cost of Work The upward sloping labor supply curve tells you that, other things equal, as wages go up, the quantity of labor supplied goes up This is explained by the income effect; higher incomes make people richer, and richer people can afford to choose more leisure causing a decrease in hours worked Historically real wages have been increasing and people have reduced the number of hours they work, but they still work more hours than predicted 4 The Elasticity of Labor Supply Elasticity of labor supply depends on: Individuals’ opportunity cost of working The type of labor market being discussed The elasticities of individuals’ supply curve Individuals entering and leaving the labor market Employees prefer an inelastic labor supply, but employers prefer an elastic labor supply Estimates for labor supply elasticity are about 0.1 (inelastic) for heads of household and 1.1 (elastic) for secondary earners 5 The Derived Demand for Labor The demand for labor follows the basic law of demand: the higher the wage, the lower the quantity of labor demanded The demand for labor by firms is a derived demand meaning the demand for factors of production by firms depends on consumers’ demands Wage Rate Q of Labor Demand for Labor 6 Factors Influencing the | Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 1 Chapter Goals Explain how the supply of labor is determined Explain how wages are determined by both the supply and demand for labor in combination with social forces Explain how the demand for labor is determined Contrast four types of discrimination that occur in labor markets Summarize the evolving labor laws and the implications of the labor market analysis for you 2 The Supply of Labor The higher the wage, the higher the quantity of labor supplied. The labor supply curve has a positive slope because the opportunity cost of not working increases as wages get higher Wage Rate Q of Labor Supply of Labor 3 Real Wages and the Opportunity Cost of Work The upward sloping labor supply curve tells you that, other things equal, as wages go up, the quantity of labor supplied goes up This is explained by the income effect; higher incomes make people richer, and richer people can afford to choose more