TAILIEUCHUNG - Lecture Economics: The basics (2/e): Chapter 16 - Michael Mandel

Chapter 16 - Economics of the labor market. After reading the material in this chapter, you should be able to: Define the labor supply and demand curves, identify factors affecting labor market equilibrium, explain why different workers may receive different wages, describe effects of government regulation on the labor market,. | Chapter 16 Economics of the Labor Market McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved. Learning Objectives Define the labor supply and demand curves. Identify factors affecting labor market equilibrium. Explain why different workers may receive different wages. Describe effects of government regulation on the labor market. Identify the factors driving long-term labor supply. 16- Basics of the Labor Market The labor market involves the buying and selling of the time and effort of different kinds of workers. The labor input is essential for all production activities. The labor market functions like other markets, meaning that the price of labor (wages) is set by supply and demand. 16- Labor Supply The labor force is the part of the adult population that is either working or actively looking for a job. An individual’s choice to be in the labor force or not is known as the labor force participation decision. The labor supply curve tells us, given the wage, how many people are in the labor force and looking for work. 16- Labor Demand The labor demand curve shows how many workers businesses will want to hire at a given wage. In general, as the wage rises, businesses will want to hire fewer workers. The hiring decision depends on the marginal product and marginal cost of labor. 16- Labor Demand The marginal product is the increased production or output that hiring an extra worker generates. The marginal cost is the wage the company pays the worker. To make the hiring decision, the manager compares the added revenue an extra worker brings in against the additional cost of hiring that worker. A company will hire as long as marginal revenue exceeds the wage. 16- Labor Market Supply and Demand 16- Example of Labor Demand The first two columns of the table on the next slide show the production function. The marginal product is a measure of the productivity of each worker. Given the $20 price for haircuts,

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