What is Demand for Labor? Demand is the different quantities of workers that businesses are willing and able to hire at different wages.

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1 What is Demand for Labor? Demand is the different quantities of workers that businesses are willing and able to hire at different wages. What is the Law of Demand for Labor? There is an INVERSE relationship between wage and quantity of labor demanded. What is Supply for Labor? Supply is the different quantities of individuals that are willing and able to sell their labor at different wages. What is the Law of Supply for Labor? There is a DIRECT (or positive) relationship between wage and quantity of labor supplied. Workers have trade-off between work and leisure 3

2 Who demands labor? FIRMS demand labor. Demand for labor shows the quantities of workers that firms will hire at different wage rates. Wage As wage falls, Qd increases. As wage increases, Qd falls. DL Quantity of Workers 4

3 Where do you get the Market Demand? McDonalds Burger King Other Firms Market Wage Q L Dem Wage Q L Dem Wage Q L Dem Wage Q L Dem $12 1 $10 2 $8 3 $6 5 $4 7 $12 0 $10 1 $8 2 $6 3 $4 5 $12 9 $10 17 $8 25 $6 42 $4 68 $12 10 $10 20 $8 30 $6 50 $4 80 P P P P $8 $8 $8 $8 3 D Q 2 D Q 25 D Q 30 D Q

4 Who supplies labor? Individuals supply labor. Supply of labor is the number of workers that are willing to work at different wage rates. Higher wages give workers incentives to leave other industries or give up leisure activities. Wage Labor Supply As wage increases, Qs increases. As wage decreases, Qs decreases. Quantity of Workers 6

5 Equilibrium Wage (the price of labor) is set by the market. EX: Supply and Demand for Carpenters Wage Labor Supply $30hr Labor Demand Quantity of Workers 7

6 With your partner... Use supply and demand analysis to explain why surgeons earn an average salary of $137,050 and gardeners earn $13,560. Supply and Demand For Surgeons Supply and Demand For Gardeners S L Wage Rate Wage Rate S L D L D L Quantity of Workers Quantity of Workers

7 Shifters 9

8 Resource Demand Example 1: If there was a significant increase in the demand for pizza, how would this affect the demand for cheese? Cows? Milking Machines? Veterinarians? Vet Schools? Etc. Example 2: An increase in the demand for cars increases the demand for Derived Demand- The demand for resources is determined (derived) by the products they help produce. 10

9 3 Shifters of Resource Demand 1.) Changes in the Demand for the Product Price increase of the product increases the demand for the resource. 2.) Changes in Productivity of the Resource Technological advances in resources make the resource more profitable 3.) Changes in Price of Other Resources Substitute Resources Ex: What happens to the demand for assembly line workers if price of robots falls? Complementary Resources Ex: What happens to the demand of painters if there is a shortage of ladders? 11

10 3 Shifters of Resource Demand Identify the Resource and Shifter (ceteris paribus): 1. Increase in demand for microprocessors leads to a(n) in the demand for processor assemblers. 2. Increase in the price for plastic piping causes the demand for copper piping to. 3. Increase in demand for small homes (compared to big homes) leads to a(n) the demand for lumber. 4. For shipping companies, in price of trains leads to decrease in demand for trucks. 5. Decrease in price of sugar leads to a(n) in the demand for aluminum for soda producers. 6. Substantial increase in education and training leads to an in demand for skilled labor. 12

11 3 Shifters of Resource Demand Identify the Resource and Shifter (ceteris paribus): 1. Increase in demand for microprocessors leads to a(n) increase in the demand for processor assemblers. 2. Increase in the price for plastic piping causes the demand for copper piping to. increase 3. Increase in demand for small homes (compared to big homes) leads to a(n) decrease the demand for lumber. 4. For shipping companies, decrease in price of trains leads to decrease in demand for trucks. 5. Decrease in price of sugar leads to a(n) increase in the demand for aluminum for soda producers. 6. Substantial increase in education and training leads to an increase in demand for skilled labor. 13

12 Resource Supply Shifters Supply Shifters for Labor 1. Number of qualified workers Education, training, & abilities required or a change in other labor markets. 2. Government regulation/licensing Ex: What if Uber drivers had to obtain a license? 3. Personal values regarding leisure time and societal roles. Ex: Why has the number of women increased in the labor force in the last 40 years?

13 Show the effect of each of the following events on the labor market in the computer manufacturing industry? a. Congress buys personal computers for all U.S. college students. b.more students major in engineering and computer science. c. Firms buy new manufacturing plants. 15

14 Suppose a freeze destroys part of the Florida orange crop. a. Explain what happens to the price of oranges and the marginal product of orange pickers as a result of the freeze. 16

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16 Above-Equilibrium Wages 18

17 Minimum Wage Wage S $15 $8 $ D Q Labor 19

18 Efficiency Wages by paying workers more, it increases their productivity Pays $10.50/hour Why would In-N-Out choose to do this? How does this higher wage affect their worker turnover rate? What about the opportunity cost of losing a job there? 20

19 How do Unions Increase Wages? 1. Labor Unions have market power. Can threaten to withhold labor by calling a strike. 2. Lobbying government officials to increase demand Ex: Teacher s Union petitions governor to increase spending. 3. Increase the price of substitute resources Ex: Unions support increases in minimum wage

20 Why do earnings vary? 22

21 Why do male basketball players earn more than female basketball players? Why do female models earn more than male models? demand MRP

22 Why do women on average earn less then men? 1. Occupational Selection What majors do women typically occupy? Compensating Differentials - wages depend on how attractive or unattractive the job is. Physical labor jobs tend to be unionized. 2. Experience Children studies show wages begin to fall with the birth of the first child and revive (but don t recover) when children pass the age of 20. Take time off Move to other jobs where the hours are more flexible If a woman has a baby at 24, she can expect to receive nearly $1 million less over her career. 3. Do women negotiate their salaries? 24

23 Gender Income Gap On average, for every $1.00 a man earns, women earn $0.80. Market forces tend to work against discrimination If women are paid 20% less then men, why would employers hire anyone but women? Profit-seeking firms would demand women so what would happen to their wages?

24 Gender Income Gap

25 What are other reasons for differences in wage? Labor Market Imperfections- Insufficient/misleading job information- This prevents workers from seeking better employment. Geographical Immobility- Many people are reluctant or too poor to move so they accept a lower wage Unions Collective bargaining and threats to strike often lead to higher that equilibrium wages Wage Discrimination- Some people get paid differently for doing the same job based on race or gender.