LABOR, WAGES, AND EARNINGS

√ Wages and wage rates are the price paid for

labor. Wage is said to mean some wage rate per unit of time. √ Weekly or monthly salaries, bonuses, royalties, commissions are also forms of wages.

√ Labor means 1) blue and white-collar workers 2) professional workers 3) owners of small businesses who provide

their labor in operating.

LABOR, WAGES, AND EARNINGS

√ Nominal wage is the amount of money

received per hour, per day or whatever

the time frame. Sometimes called gross

earnings. (wage rate x time worked)

√ Real wage is the quantity of goods

and service a person can obtain with

nominal wages; purchasing power of

nominal wages.

Nominal wages—inflation% = real wage

Purely Competitive Labor Market

•Many Firms

•Numerous Qualified Workers

•“Wage Taker” Behavior

•Market Demand for Labor

•Market Supply of Labor

SL

D = MRP ( mrp’s)

$ 6 Wc

(1000)

Purely Competitive Labor Market SL is the quantity of labor willing and able to work at each wage rate

D=MRP is the quantity of labor demanded by the firms at each wage rate. It is the sum of each of the firms’ mrp’s.

Q of L

WR

Non- Labor Costs

Labor Costs

Individual Firm

S = MRC

d = mrp

$6Wc

(q) q of labor

wr The firm gets its price from the market equilibrium of demand and supply of labor. For the firm, MRC (S) is perfectly elastic and MRP is downsloping. Each firm will find it profitable to hire labor up to the point at which MRP=MRC.

Non- Labor Costs

Labor Costs

Purely Competitive Labor Market Equilibrium

Labor Market

S

D = MRP ( mrp’s)

Wc

(1000)

Individual Firm

S = MRC

d = mrp

Wc

Quantity of Labor

Wa

ge

Ra

te (

do

lla

rs)

Quantity of Labor

($6)

(5)

$6

Includes Normal Profit

… a market in which an employer of resources has monopolistic buying (hiring) power.

…one major employer or several acting like a single monopsonist in a labor market.

Monopsony Model

Wa

ge

Ra

te (

do

lla

rs)

S

Quantity of Labor

Monopsonistic Labor Market

In monopsony MRC lies above

the supply curve.

MRC

Wa

ge

Ra

te (

do

lla

rs)

MRP

S

Wm

Quantity of Labor

MRC

Qm

MRP = MRC

Qm units of

labor hired

Monopsonistic Labor Market

Monopsonists maximize profits by hiring a smaller

number of workers and thereby paying a less-than-

competitive wage rate.