Economics: Chapter 18: The Labor Market – Flashcards

The Products Market (the market for goods and services) and the Factors Market. The Factor Market refers to the market for factors of production: land, labor and capital. This chapter focuses on the Labor.

Because the sellers of labor (us) interested in more than just the wage rate: 1) working conditions 2) co-workers 3) commute (how long it takes to get to work) 4) promotional opportunities 5) prestige and fulfillment

The amount that a firm/company pays a worker per hour,day or a certain time period. Teacher's definition: any hourly, daily or any other time unit of pay.

Perfectly competitive market because lots of buyers and sellers.

can be providing the same product market but do not have the same labor market. (Volvo and GM = different locations of labor) Some firms are in different product markets but the same labor market. (MBAs and Computer Techs) - Stupid Point from Teacher's lecture - Do not overthink

is the quantities of labor employers are willing/able to hire at alternative wage rates in a given time period, ceteris paribus.

A term in economics that means that the demand for labor (or other factors of production) is derived from the demand for a firm's output (product). For instance: Software and Internet (also cell service) firms have a very high demand for labor derived from the fact that we always need tech. people able to create new apps for example. On the other hand: Dictating machines and typewriters require very low amount (close to zero) of labor derived from the fact that now we have computers.

By the forces of supply and demand in the market of apple pickers.

The change in revenue that results from the addition of one extra unit (usually a variable unit such as labor) when all other factors are kept equal. In other words, how much additional revenue will be produced when we add one additional unit of a variable unit such as labor. In other words: Hire the number of workers where Wage = Marginal Revenue Product; similar to Product-maximizing rate of output where MC (similar to wage that needs to be paid to the additional worker) = MR.

Same thing as VMPL (value of marginal product of labor)

Value of the marginal product of labor; it is the additional revenue resulting from the sale of output produced by an additional worker; is equal to MPL times price. Recall that revenue = quantity times price: this term describes the revenue that we get from the quantity produced by 1 additional worker so it is going to be MPL (Marginal produce of labor) * the price of 1 unit quantity of that product.

Never hire an additional worker that costs more (his/her Wage) than it brings in (Marginal Revenue Product).

Formula: ∆Output/ ∆Quantity of Labor

Represents the additional output gained from an additional worker. Let's say that hiring the first worker increases output by 100 shovels, so the MPL is 100 shovels. Thus, the first point on the MPL curve is (0.5,100). - (Notice how it is .5: between 0 and 1 workers on the axis) Increasing the number of workers from 1 to 2 raises production from 100 to 195, so the marginal product is equal to. Thus, (1.5, 95) is another point on the MPL curve. It is 95 because 195-100=95

the value of the marginal product of labor (VMPL) that it receives from the revenue produced per that additional worker is at least as high as the wage that it must pay to that one worker

Graph that illustrates the relationship between the quantity of an input and total output. A graph that shows the amount of output produced in the y axis and the amount of workers needed to produce each quantity on the x axis.

Diminishing Marginal Product/Returns; At one point or another adding one more worker will result in diminishing MPL (output) because of crowding in our fixed inputs

Marginal Revenue refers to the change in the actual revenue that a firm or company gains from hiring the worker whereas marginal product of labor refers to the change in output of the product from hiring an additional worker.

1. ∆TR/ ∆Quantity of Labor 2. MPL (Marginal Product of Labor) x Price (use this formula when the output is sold in a competitive product market)

Is where the demand curve of the labor (because it is the same thing as the curve for VMPL) by firms (firms demanding labor) intersects with the wage rate curve.

. MRP (Value of Marginal Product of Labor (notice we added the word value = very important) = Wage; . In other words if the firm is yielding more revenue by the addition of one more worker more than what the additional worker is earning, the firm will hire more workers (like it will hire more additional workers) . Think of it like the revenue that the firm is earning from hiring an additional worker is less than what is its paying to the additional worker(s): the firm will lay off some workers because they're just a burden.

the VMPL (or the MRP) Curve The market labor demand curve tells us the total number of workers ALL firms in a labor market want to employ at each wage rate in a given time period, ceteris paribus.

Since the wages is on the vertical axis and the quantity of workers is in the horizontal axis, a decrease in the wage rate will CAUSE A MOVEMENT ALONG AND TO THE LEFT OF the supply curve of workers (in other words: the number of people who are offering themselves for labor at a decreasing wage rate will decrease). At the same time, there will be MOVEMENT TO THE RIGHT ALONG THE demand curve for labor by firms which means more workers will be employed if they're willing and able to paid at a lower wage rate which ultimately results in an INCREASE IN EMPLOYMENT OR a decrease in UNEMPLOYMENT (good to know the entire paragraph :))

move along the SUPPLY AND DEMAND curves for labor. (very important) - not just one or the other. ONLY the demand curve will shift. ONLY the labor supply curve will shift

1) Change in output prices (VMPL or MRP = MPL x Price) For example: If Price of the product/service that the worker is providing increases like pharmaceutical are by pharmacists = Labor Demand↑ Price decreases↓ = Labor Demand↓ 2) Changes in technology/productivity (complement vs. substitute) (e.g., personal computer vs. industrial robot) If technlogy was a Complement: then ↑ in acquisition of Technology will lead to increase in LD (for example an increase in the demand for workers who know how to operate a very complicated machine) Can be a Substitute: Technology↑ = LD↓ (example of this will be the check-out stations at walmart that led to laying off of a lot of workers) 3) Change in price of another input (complement vs. substitute) Complement: Price of other input↑ = LD↓ (makes sense because for instance if the price of the compliment of the labor for example the machine that the worker works on increases then there is less demand for it and less demand for its compliment in this case the worker) Substitute: Price of other input↓ = LD↓ makes sense because if there is a robot that does the same thing as the worker for less price, then demand for the worker will decrease) 4) Change in the number of firms (more firms, more hiring, more demand for labor) May be add size of the cities as 5) The Bigger the Cities = more firms = more demand for workers = LD ↑

the ability and willingness to work specific amounts of time at alternative wage rates in a given time period, ceteris paribus. As wages increase, more workers are willing and able to supply themselves for work.

increase, supply; decrease, supply.

maximize his/her utility. (the satisfaction) because the opportunity cost of decision to work: tradeoff between income and leisure and labor wants to maximze their satisfaction from their decision of whether to work to rest.

Utility is a term used by economists to describe the measurement of "useful-ness" that a consumer obtains from any good or circumstrance (in case of labor: the utility of being employed, unemployed, part-time employed will influence the labor decision to work more/ work less/ seek employment, retire, etc).

Recall that the supply curve shows that more people are willing and able to work at increased wages. However as the wage of AN INDIVIDUAL person increases the individuals may decides to work but sometimes may also decide to substitute income for leisure. (in other words the person would rather work than rest, he's substituting working for leisure). (two forces are in effect here: the substitution effect and the income effect - discussed below). If the income effects outweigh the substitution effects, an individuals labor supply curve will be backward-bending.

X replaces Y Y replaces X Y replaces X Y replaces X

Occurs when an increased wage rate encourages people to work more hours AND SUBSTITUTE LABOR FOR LEISURE. (in other words they're choosing labor over leisure) Overtime is a great example, also on holidays when you work, you get paid double sometimes and hence you decide to work rather than taking the day off. (repeat if you don't know the examples - recall her midterm questions)

occurs as an increased wage rate allows a person to reduce hours worked without losing income. (you're still losing income but not that much so the person isn't considerably losing income). Example: Would you reduce the hours you worked if your income went up to $1 million a year? YES. (repeat if you don't know the examples - recall her midterm questions)

1) Tastes: For income, leisure; work (how much a person wants to work, how lazy the person is, etc). 2) Income and Wealth: For instance: Paris Hilton doesn't have to work as much. 3) Expectations for income and consumption (like you're expecting to have a kid soon so you want to work more) 4) Prices of consumer goods (increase in price = you have to work more) 5) Taxes (if you have to pay more income taxes, you'll work less because the government is taking away all your money) 6) Immigration: U.S. is a country of immigration, more workers that means increased labor supply.

1) The forces of supply/demand will drive a competitive labor market to its equilibrium point, where the curves intersect. (note not where the wage curve intersects with the demand/VMPL curve). 2) The equilibrium wage is the wage at which the quantity of labor supplied in a given time period equals the quantity of labor demanded.

1) exists when there is an excess demand for labor. 2) Occurs when wage fails to rise to its equilibrium level e.g. Nurses.

1) exists when there is an excess supply of workers or the quantity of Labor supplied is greater than the quantity of Labor demanded. 2) Occurs when wage is above equilibrium value. e.g. Union Jobs

is the skills, talents, etc.. in humans. analyze the decision to go to college. There is a wage premium for college degrees (an increase in the wage for people with college degrees): In the 1960s and 1970s those with college degrees made 40-50% more than those with a high school diploma. In 1999 this wage gap rose to 86% in other words people who went to college make 86% more than those who didn't go to college.

See Ppt Slide as necessary (don't think its important, she taught it to us just for our interest i think) 1) Horizontal Line: as you grow older, income increases. 2) However there is a negative income during college because of college debt for instance when you're investing in your own human capital. 3) Note that people without college degree started making money and have an income increase earlier than those with college degree 4) However, those with college degree, even though they started with negative income from age 18 till age they graduate college, once they graduate, there is a vertical huge increase in their income and then a further increase in their income over a lifetime more than those without college degree.

1) According to labor market analysts, the demand for college-educated labor will increase faster than supply, thus the wage for college grads is expected to increase. (see Ppt Slide as necessary) 2) As a result, there will be greater income inequality between college graduates and those without a college education.

1) Compensating differentials (policeman (because dangerous jobs), trash collectors (because really dirty), firefighters, Hollywood Production Assistants) 2) Cost of Living differences (SF vs. Des Moines) 3) Differences in Human Capital (Doctors, lawyers vs. a job that doesn't require much effort) 4) Differences in Ability (Meryl Streep, Tom Cruise vs. person with less or minimal talents) 5) Barriers to entry (Licensing laws - Lawyers, Dentists, Doctors, Cosmetologists) 6) Union Wage-setting (#1 goal of unions is higher wages, workers in a union-job get paid more than those in a non-union job) 7) Discrimination (Chelsea Clinton (Bill Clinton's daughter), Paris Hilton she'll get paid more just because of who she is)

Someone who is working for pay, someone who is working for their own benefits, or someone who is on a TEMPORARY leave from a paid position.

Someone who is not currently working but who is AVAILABLE to work and is/was searching for work at some point.

A person who doesn't fit the criteria for either employed or unemployed.

The number of people unemployed divided by the total number of people IN THE LABOR FORCE NOT THE TOTAL NUMBER OF PEOPLE IN THE CITY/COUNTRY FOR EXAMPLE. Answer: 10/ pp in labor force= (10+80) = 10/90 = approximately 11 percent.