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The Labor Market

The Labor Market. S. S. D. D. Households. Firms. Figure 1 Product and Factor Markets. Product Markets. Demand for Goods and Services. Supply of Goods and Services. Supply of Resources. Demand for Resources. Factor Markets.

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The Labor Market

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  1. The Labor Market

  2. S S D D Households Firms Figure 1 Product and Factor Markets Product Markets Demand for Goods and Services Supply of Goods and Services Supplyof Resources Demand for Resources Factor Markets

  3. Table 1 Data for Spotless Car Wash (Perfectly Competitive Product and Labor Markets)

  4. Dollars $200 1. Hiring another worker adds more to revenue . . . 150 3. until profits are maximized at five workers. 100 50 2. than it adds to cost . . . 1 2 3 4 5 6 7 8 Number of Workers Figure 2 The Profit-Maximizing Employment Level 60 MFC = Wage MRP

  5. Dollars Number of Workers Figure 3 The Firm’s Labor Demand Curve Firm's Labor Demand Curve A W1 W1 B W2 W2 MRP n1 n2

  6. Dollars Number of Workers Figure 4 The Employment Decision with Several Variable Inputs A W1 W1 B C W2 W2 Firm' Labor Demand Curve MRP2 MRP1 n1 n2 n3

  7. Firm A Firm B Firm C Hourly Wage Hourly Wage Hourly Wage At any wage rate(such as $10) . . . and by Firms B, C, and all other firms as well . . . if we add the number of workers demanded by Firm A . . . Number of Workers Figure 5 The Market Demand for Labor $12 10 ld ld ld 80 100 40 50 30 90

  8. Labor Market Hourly Wage we get the market quantity of labor demanded at that wage rate. Number of Workers Figure 5 The Market Demand For Labor $12 10 LD N2 = 80 + 40 + 30 + …. N1 = 100 + 50 + 90 + …

  9. Typical Firm Labor Market Hourly Wage Hourly Wage A B A B $10 n1 n2 N1 N2 Number of Workers Number of Workers Figure 6 A Shift in the Labor Demand Curve

  10. Figure 7 Introducing a New Input Hourly Wage More of a Substitutable Input More of a Complementary Input Number of Workers

  11. Table 2 Shifts in the Labor Demand Curve

  12. (a) (b) Hourly Hourly Wage Wage Number of Workers Number of Workers Figure 8 The Market Labor Supply Curve D $12 C 10 $10 1,000 1,200 1,000 1,800

  13. Table 3 Labor Force Participation Rates (Percent of those Over 16 Working or Looking for Work)

  14. Table 4 Shifts in the Labor Supply Curve

  15. 2. When the wage rate rises to $40, employment rises to 60,000 in the short run. Hourly Wage 1. Initially, the wage is $25 and 30,000 people supply labor. 3. In the longrun, the wage rate of $40 attracts new entrants and employment rises to 90,000. 4.The long-run labor supply curve connects points A and C. Number of Workers Figure 9 The Long-Run Labor Supply Curve . $40 B C A 25 30,000 60,000 90,000

  16. (a) Labor Market (b) Typical Firm Hourly Dollars Wage 3. hires up to where its MRP curve crosses the $20 wage line. 2. Each law firm, taking the market wage of $20 as a given, Number of Paralegals 1. The market labor supply and labor demand curves determine the equilibrium wage rate and equilibrium employment. Figure 10 Labor Market Equilibrium LS $24 $20 W 20 LD 16 ld Number of Paralegals 2,000 3,000 4,500 10

  17. (a) (b) Labor Market Typical Firm Dollars Hourly Wage Number of Workers Number of Workers Figure 11 A Change in Labor Demand b B W2 $40 $40 C c 30 W3 30 A a 20 20 W1 5,000 12,000 50 80 120 8,000

  18. AnnualWage Numberof New Finance Professors Figure 12 The Market for Finance Professors (1995–2002) B $102,400 66,900 A N1 N2

  19. In 1978, the average wage rate (in 2001 dollars) for college-educated labor was $31,732. Between 1978 and 2000, the labor supply curve shifted rightward . . . Median Annual Wage 2001 dollars but the rightward shift in the labor demand curve was even greater. As a result, the average wage in 2001 rose to $40,479. Millions of Workers Figure 13 The Market for College-Educated Labor B $40,479 A 31,732 14 31

  20. Figure A.1 A Monopsonist’s Employment Decision

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