copyright © pearson education, inc.slide 1 chapter 9, section 2 chapter 9: labor trends, wages and...

Copyright © Pearson Education, Inc. Slide 1Chapter 9, Section 2

Chapter 9: Labor Trends, Wages and ImmigrationChapter 9: Labor Trends, Wages and Immigration• Guiding Question: How can workers best meet

the challenges of a changing economy?

Project:Is Immigration Good or Bad for the US Economy

Ch9.2: Why do some people earn more than

others?


ObjectivesObjectives

1. Analyze how supply and demand in the labor market affect wage levels.

2. Describe how skill levels and education affect wage levels.


IntroductionIntroduction

• Why do some people earn more than others?– How many people are needed for that job? (demand

for workers)– How many people can do that job?(supply of workers)– How much is their output (what they are producing)

worth?

• Examples:– NBA Player– Computer Programmer– Babysitter


Labor Market: Supply, Demand, Wage:

Intro to Labor MarketLabor Market: Supply, Demand, Wage:

Intro to Labor Market• Just as each good/service has a market, the labor for

each good/service has a market– That means the labor market for engineers is different

than the labor market for cashiers

• A labor market graph includes:– Labor Supply Curve– Labor Demand Curve– Equilibrium wage and job level (output)

• Labor Economists focus on skills– Workers with different skills compete in different labor

markets– Human Capital is the name of the Labor Market

game!



Labor DemandLabor Market: Supply, Demand, Wage:

Labor Demand

• Labor Demand is the hiring of workers by firms/government to produce goods/services– In a competitive labor market, workers are

usually paid according to the value of what they produce.

• This is called the productivity of labor• More productive = higher wages

– Law of diminishing returns means MRP decreases as you hire more workers (downward sloping labor demand)



Labor SupplyLabor Market: Supply, Demand, Wage:

Labor Supply

• Labor Supply comes from workers looking for jobs

• Law of Supply: The higher the wage for a particular job, the larger the quantity of labor supplied.(upward sloping Labor Supply curve)



Getting to Equilibrium WageLabor Market: Supply, Demand, Wage:

Getting to Equilibrium Wage– Based on Labor Demand (the firms), if each cook works a

40-hour work week, how many cooks will be hired at $8, $12, and $16 an hour?

– Based on Labor Supply (the workers), if each cook works a 40-hour work week, how many cooks will work for $8, $12, and $16 an hour?

$8/hr: 8ppl $12/hr: 6ppl, $16/hr: 4ppl

$8/hr: 4ppl $12/hr: 6ppl, $16/hr: 8ppl


• Equilibrium wage is the wage rate, or price of labor– Labor demand equals labor supply

• Wages are stable (no shortage/surplus)

• Different Equilibrium wage for each different labor market


What is Equilibrium Wage?Labor Market: Supply, Demand, Wage:

What is Equilibrium Wage?


• What is equilibrium wage in our cook example?

• How many workers will be hired in equilibrium (assume 40hr week)?

• What happens if minimum wage is set at $16/hr?


What is Equilibrium Wage?Labor Market: Supply, Demand, Wage:

What is Equilibrium Wage?

$12 per hour

6 workers

Labor surplus (S>D) of 4ppl


Wage, Education and Skill LevelsWage, Education and Skill Levels

• If everyone has the same skill level– Then, we are in one labor market and labor supply and

demand will affect wage level

• Different people have different skills– There is different labor demand for different skill levels

• Jobs are often categorized into four skill levels:– Unskilled labor - cashier– Semi-skilled labor – lab technician/mechanic – Skilled labor – office worker, most college graduates– Professional labor – doctors, teachers, lawyers


Wage, Education and Skill LevelsWage, Education and Skill Levels

• Labor supply and demand varies greatly for workers with different skills– Doctors, for example, who have extensive

training and experience, create a shortage (demand for doctors > supply of doctors), and can therefore earn high wages

– Cashiers, who have limited specialized skills, earn low wages because there is a surplus create (supply of cashiers > cashier jobs)


Labor Market Scenario AnalysisLabor Market Scenario Analysis

• This chapter focuses on changes in labor market trends

• Analysis of labor market graph to see effect of changes on wages/jobs (same as before)

1. Draw labor market graph (supply/demand)

• (p = wage, q = workers or hours)

2. Did shock shift labor supply or demand?

3. Shift right or left?

4. Labor surplus or shortage?

5. What happens to equilibrium wage and workers/hours?



• We are analyzing the labor market for construction workers. The housing market crash reduced the need for new housing construction. What is the impact on equilibrium wage and jobs for construction workers?


2. Shift right or left?3. Labor surplus or shortage?4. What happens to equilibrium wage and

workers/hours?



• We are analyzing the labor market for petroleum engineers. The huge growth in China/India/Brazil has led to massive increase in the demand for oil. This has led to tons of oil and gas exploration projects. What is the impact on the equilibrium wage and jobs for petroleum engineers?


2. Shift right or left?3. Labor surplus or shortage?4. What happens to equilibrium wage and

workers/hours?


Key TermsKey Terms

• productivity of labor: the quantity of output produced by a unit of labor

• equilibrium wage: the wage rate that is set when the supply of workers meets the demand for workers in the labor market

• unskilled labor: work that requires no specialized skills, education, or training

• semi-skilled labor: work that requires minimal specialized skills and education


Key Terms, cont.Key Terms, cont.

• skilled labor: work that requires specialized skills and training

• professional labor: work that requires advanced skills and education

• glass ceiling: an unofficial barrier that sometimes prevents some women and minorities from advancing to the top ranks of organizations dominated by white men

copyright © pearson education, inc.slide 1 chapter 9, section 2 chapter 9: labor trends, wages and...

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labor supply labor supply

labor demand labor demand

labor trends

quantity of labor

productivity of labor

sloping labor demand

labor market graph

competitive labor market