The Market for Labor Lesson 19 Sections 71, 73

The Supply of Labor Work versus Leisure Wages and Labor Supply Shifts in Labor Supply Changes in Preferences and Social Norms Changes in Population Changes in Opportunity Changes in Wealth

Equilibrium in the Labor Market Labor Market in competitive and non-competitive markets In a non-competitive market, employs each factor such that the marginal cost of factor = marginal revenue of factor In a competitive market, marginal revenue = price Marginal Revenue Product of Labor (MRPL) Marginal Factor Cost of Labor (MFCL) Monopsony(one firm hiring)/ Monopsonist(single buyer) Figure 71.3 Firm Labor Demand with Imperfect Competition Ray and Anderson: Krugman’s Economics for AP, First Edition Copyright © 2011 by Worth Publishers Figure 71.4 Firm Labor Supply in a Perfectly Competitive Labor Market Ray and Anderson: Krugman’s Economics for AP, First Edition Copyright © 2011 by Worth Publishers

Marginal Productivity Theory of Income Distribution Marginal Productivity and Wage Inequality Compensating Differentials How attractive or unattractive the job is Equilibrium Value of the Marginal Product (perfect competition) Wages are equal to the last person hired Human Capital Skills, education, experience Market Power Unions Efficiency Wages Incentives and bonuses Discrimination

Figure 73.1 Earnings Differentials by Education, Gender, and Ethnicity, 2009 Ray and Anderson: Krugman’s Economics for AP, First Edition Copyright © 2011 by Worth Publishers

Is the Marginal Productivity Theory of Income Distribution Really True? Large observed disparities in income Men (100%) and Women (79%) Moral Justification? It works pretty well, but there are large disparities that are not explained.

The New Slavery The European System Long before the proletariat began to perceive their employers as class antagonists, the new order of industrialists portrayed the proletariat as enemies of progress. The working class was negatively defined as having no interests and therefore no social existence. [The working class’] only desire was to be as idle as possible. “Great wages and certainty of employment render the inhabitants of cities insolent and debauched,” writer William Temple declared, “The only way to make [the poor] temperate and industrious is to lay them under the necessity of laboring all of the time they can spare from meals and sleep, in order to procure the common necessities of life.” Frederick Douglas, “experience demonstrates that there may be a slavery of wages only a little less galling and crushing in its effects than chattel slavery, and that this slavery of wages must go down with the other”