Topics in Labor Supply and Demand

1. Topics in Labor Supply and Demand Lectures in Microeconomics-Charles W. Upton

2. Equilibrium The intersection of supply and demand determines wage rates and hours worked. w SSR wo D SLR H Lo Topics in Labor Supply and Demand

3. A Shift in Demand w Now suppose the demand curve shifts to the right SSR wo D’ D SLR H Lo Topics in Labor Supply and Demand

4. The Short Term Response If people perceive this as a temporary shift, we move along the SR labor supply curve. w Now suppose the demand curve shifts to the right SSR w1 wo D’ D SLR H Lo L1 Topics in Labor Supply and Demand

5. The Short Term Response If people perceive this as a temporary shift, we move along the SR labor supply curve. w Wages go up and people work more hours Now suppose the demand curve shifts to the right SSR w1 wo D’ D SLR H Lo L1 Topics in Labor Supply and Demand

6. A Permanent Shift in Demand If people perceive this as a permanent shift, we move along the LR labor supply curve. w w2 SSR wo D’ D SLR H L2 Lo Topics in Labor Supply and Demand

7. A Permanent Shift in Demand If people perceive this as a permanent shift, we move along the LR labor supply curve. w Wages go up but people work fewer hours w2 SSR wo D’ D SLR H L2 Lo Topics in Labor Supply and Demand

8. Intersection in Two Markets w w w SSR SLR D Skilled Unskilled Topics in Labor Supply and Demand

9. A Shift in Productivity w w Now suppose a new technology favors skilled workers w SSR SSR SLR SLR D D Topics in Labor Supply and Demand

10. Initial Impact on Hours and Wages w w If skilled workers adjust their perception they work harder and wages rise w SSR SSR SLR SLR D D Topics in Labor Supply and Demand

11. Second Impact on Hours and Wages w w If skilled workers adjust their perception they work harder and wages rise w As they change their perception, they move to the LR labor supply curve SSR SSR SLR SLR D D Topics in Labor Supply and Demand

12. Second Impact on Hours and Wages w w If skilled workers adjust their perception they work harder and wages rise w As they change their perception, they move to the LR labor supply curve SSR SSR Wages rise even more as hours worked declined SLR SLR D D Topics in Labor Supply and Demand

13. The Unskilled Market w w w SSR SSR There is a secondary effect. The demand for unskilled workers decline SLR SLR D D Topics in Labor Supply and Demand

14. The Unskilled Market w w w Their wage rate declines and they work longer hours SSR SSR There is a secondary effect. The demand for unskilled workers decline SLR SLR D D Topics in Labor Supply and Demand

15. Compensating Differentials • Day and Night Differentials. Topics in Labor Supply and Demand

16. Compensating Differentials • Day and Night Differentials. • One study estimates that, in 1984, the average shift differential for night manufacturing work was 30¢ an hour, when the average wage rate in manufacturing was $9.18 Topics in Labor Supply and Demand

17. Compensating Differentials • Day and Night Differentials. • High Risk versus Low Risk Jobs Topics in Labor Supply and Demand

18. Compensating Differentials • Day and Night Differentials. • High Risk versus Low Risk Jobs • There are estimates that workers receive between $20 and $300 more per year for every one in ten thousand increase in the risk of being killed on the job. Topics in Labor Supply and Demand

19. Compensating Differentials • Day and Night Differentials. • High Risk versus Low Risk Jobs • There are estimates that workers receive between $20 and $300 more per year for every one in ten thousand increase in the risk of being killed on the job. • A firm employing 10,000 workers where the expected number of deaths is two per year, could save $200,000 - $3,000,000 per year in wages by cutting the number of fatalities in half. Topics in Labor Supply and Demand

20. End ©2006 Charles W. Upton Topics in Labor Supply and Demand