Chapter 5 Sect 1: Demand/Supply in Labor Markets

Question 1

How does the law of demand apply in labor markets?

Answer 1

A higher salary/wage (i.e. price) leads to a decrease in the quantity of labor demanded by employers, while a lower salary/wage leads to an increase in quantity of labor demanded

Question 2

What happens when the price of labor is not at equilibrium?

Answer 2

Economic incentives tend to move salaries toward the equilibrium

Question 3

Changes that cause labor demand shifts (6)

Answer 3

1. Demand for output
2. Education and training
3. Technology
4. Number of companies
5. Government regulations
6. Price and availability of other outputs

Question 4

What does labor supply look like on a graph compared to wages?

Answer 4

Upward slope. The higher the price (wage), the greater the quantity of laborers.

Question 5

Changes that cause labor supply shifts (3)

Answer 5

1. Number of workers
2. Required education
3. Government policies

Question 6

What will a change in salary do to labor demand/supply curves?

Answer 6

Will cause movement along these curves, but not an actual shift in the curve
(hint: price is on an axis)

Question 7

Which does new technology affect: supply of labor, or demand for labor?

Answer 7

Demand for labor

Question 8

How does technology affect the demand curves for low and high skilled workers?

Answer 8

Shifts demand curve for low-skilled workers left

Shifts demand curve for high-skilled workers right

Question 9

What percent of the US labor force is paid the minimum wage?

Answer 9

1%

Question 10

Nonbinding minimum wage

Answer 10

Minimum wage is below the equilibrium wage level, so the price floor is not determining the market outcome

Question 11

What is the downside of minimum wage?

Answer 11

Supply of laborers will increase in response to the wage increase, and demand for laborers will shrink because businesses will want to hire fewer higher-paid employees. Some workers will lose jobs, even if others are paid a bit more.

Question 12

Marginal Product of Labor

Answer 12

The increase in a firm’s revenues created by hiring an additional laborer. Declines as more labor is used. Firms will hire as long as wage < MPL

Question 13

What happens to the supply curve for an individual, as they earn more?

Answer 13

As wage increases, they may be motivated to work more. As it continues to increase, it may slope backward as they are motivated to have more leisure time.

Question 14

Why do janitors earn less in India than the US?

Answer 14

In India, demand for janitors is lower and supply of janitors is higher.

Question 15

Precariat Era

Answer 15

Many people struggling to make ends meet by cobbling together part-time, low earning jobs/gigs. Era characterized by instability created by workers that no longer have “career” opportunities.

Question 16

In neoclassical economics, what is the firm’s decision to hire a worker based on?

Answer 16

Comparing marginal cost and marginal benefit, and deciding how much to produce

Question 17

What is wrong with the neoclassical theory that a firm will hire workers based on whether their marginal cost brings a benefit?

Answer 17

Research shows that, in reality, hiring decisions have little to do with wages or marginal production

Question 18

Class

Answer 18

Group of people that are similar in the way they earn a living (not necessarily similar incomes)

Question 19

Technostructure

Answer 19

Body of employees within the large corporation who have unique and important skills necessary for long-run in the business

Question 20

How does heterodox economics explain groups of workers?

Answer 20

Class-system

High skilled employees tend to have more relationship and decision-making power, earn more, and have more job security

Question 21

Hyman Minsky

Answer 21

Described transition of developed capitalist economies from managerial capitalism to money manager capitalism

Question 22

Money Manager Capitalism

Answer 22

Form of capitalism in which financial firms and their interests take the highest priority

Question 23

Marginal Product of Labor

Answer 23

the amount that an additional worker hired adds to the revenues of the firm

Question 24

In the traditional model of the labor market, firms hire labor only if …

Answer 24

the marginal product of labor is equal to or greater than the market wage