Chapter 5 Sect 1: Demand/Supply in Labor Markets Flashcards
How does the law of demand apply in labor markets?
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
What happens when the price of labor is not at equilibrium?
Economic incentives tend to move salaries toward the equilibrium
Changes that cause labor demand shifts (6)
- Demand for output
- Education and training
- Technology
- Number of companies
- Government regulations
- Price and availability of other outputs
What does labor supply look like on a graph compared to wages?
Upward slope. The higher the price (wage), the greater the quantity of laborers.
Changes that cause labor supply shifts (3)
- Number of workers
- Required education
- Government policies
What will a change in salary do to labor demand/supply curves?
Will cause movement along these curves, but not an actual shift in the curve
(hint: price is on an axis)
Which does new technology affect: supply of labor, or demand for labor?
Demand for labor
How does technology affect the demand curves for low and high skilled workers?
Shifts demand curve for low-skilled workers left
Shifts demand curve for high-skilled workers right
What percent of the US labor force is paid the minimum wage?
1%
Nonbinding minimum wage
Minimum wage is below the equilibrium wage level, so the price floor is not determining the market outcome
What is the downside of minimum wage?
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.
Marginal Product of Labor
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
What happens to the supply curve for an individual, as they earn more?
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.
Why do janitors earn less in India than the US?
In India, demand for janitors is lower and supply of janitors is higher.
Precariat Era
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.
In neoclassical economics, what is the firm’s decision to hire a worker based on?
Comparing marginal cost and marginal benefit, and deciding how much to produce
What is wrong with the neoclassical theory that a firm will hire workers based on whether their marginal cost brings a benefit?
Research shows that, in reality, hiring decisions have little to do with wages or marginal production
Class
Group of people that are similar in the way they earn a living (not necessarily similar incomes)
Technostructure
Body of employees within the large corporation who have unique and important skills necessary for long-run in the business
How does heterodox economics explain groups of workers?
Class-system
High skilled employees tend to have more relationship and decision-making power, earn more, and have more job security
Hyman Minsky
Described transition of developed capitalist economies from managerial capitalism to money manager capitalism
Money Manager Capitalism
Form of capitalism in which financial firms and their interests take the highest priority
Marginal Product of Labor
the amount that an additional worker hired adds to the revenues of the firm
In the traditional model of the labor market, firms hire labor only if …
the marginal product of labor is equal to or greater than the market wage
