This chapter focuses on the labor market and labor market outcomes such as wages and the distribution of income. This is the first of three chapters on the Economics of Public Policy; all three chapters apply the tools developed in Chapters 1 through 11 to a series of public policy issues. | Chapter 12 Labor Markets, Poverty, and Income Distribution McGraw-Hill/Irwin Copyright © 2015 by McGraw-Hill Education (Asia). All rights reserved. Learning Objectives Understand the relationship between wages and the marginal productivity of workers Analyze how wages and employment are determined in competitive labor markets Compare and contrast the various hypotheses economists have proposed to explain earnings differences Discuss recent trends in . income inequality and justifications for income redistribution Describe and analyze some methods used to reduce poverty in the . The Economic Value of Work Individual income vary widely Comparable skills seem to earn different incomes Economics analysis applies to labor markets Equilibrium wage and quantity are determined by supply of and demand for a each category of labor Labor categories include unskilled, skilled, managers, and so on Changes in supply and demand will change the equilibrium wage and quantity Mackintosh Pottery | Chapter 12 Labor Markets, Poverty, and Income Distribution McGraw-Hill/Irwin Copyright © 2015 by McGraw-Hill Education (Asia). All rights reserved. Learning Objectives Understand the relationship between wages and the marginal productivity of workers Analyze how wages and employment are determined in competitive labor markets Compare and contrast the various hypotheses economists have proposed to explain earnings differences Discuss recent trends in . income inequality and justifications for income redistribution Describe and analyze some methods used to reduce poverty in the . The Economic Value of Work Individual income vary widely Comparable skills seem to earn different incomes Economics analysis applies to labor markets Equilibrium wage and quantity are determined by supply of and demand for a each category of labor Labor categories include unskilled, skilled, managers, and so on Changes in supply and demand will change the equilibrium wage and quantity Mackintosh Pottery Works Pottery uses free clay and labor Selling price is $ per piece Handling costs are $ per piece Rennie and Laura each work full time at potting Rennie delivers 100 pots per week and Laura delivers 120 Rennie earns $100 and Laura earns $120 per week If Mackintosh paid less than $1 per pot Another pottery company could afford to pay more Rennie and Laura leave to earn more One reason for different earnings is differences in output per person The Labor Market Marginal product of labor (MP) The additional output a firm gets by employing one additional unit of labor Value of marginal product of labor (VMP) The dollar value of the additional output a firm gets by employing one additional unit of labor In a competitive market, wage = VMP Mackintosh Pottery Works example Potters' Production Value of Marginal Product Marginal product of labor multiplied times the net price of each unit sold ($1) Rennie’s VMP is $100 Laura’s VMP is $120 In a competitive market each worker is paid the
