Labor Supply and Demand

Equilibrium w The intersection of supply and demand determines wage rates and hours worked. SSR SLR D H

Shift in Demand w Initially, we move along the SR labor supply curve. Wages go up and people work harder. w2 SSR w1 wo D’ SLR D L2 Lo L1 H

Shift in Demand w Then, we move along the LR labor supply curve. People don’t work as hard and wages go up even more. w2 SSR w1 wo D’ SLR D L2 Lo L1 H

Intersection in Two Markets SSR SSR SLR SLR D D Unskilled Skilled

Intersection in Two Markets SSR SSR SLR SLR D D Unskilled Skilled

Intersection in Two Markets SSR SSR SLR SLR D D Unskilled Skilled

Intersection in Two Markets SSR SSR SLR SLR D D Unskilled Skilled

Intersection in Two Markets SSR SSR SLR SLR D D Unskilled Skilled

Compensating Differentials Day and Night Differentials.

Compensating Differentials Day and Night Differentials. One study estimates that, in 1984, the average shift differential for night manufacturing work was 30¢ an hour, when the average wage rate in manufacturing was $9.18

Compensating Differentials Day and Night Differentials. High Risk versus Low Risk Jobs

Compensating Differentials Day and Night Differentials. High Risk versus Low Risk Jobs There are estimates that workers receive between $20 and $300 more per year for every one in ten thousand increase in the risk of being killed on the job.

Compensating Differentials Day and Night Differentials. High Risk versus Low Risk Jobs There are estimates that workers receive between $20 and $300 more per year for every one in ten thousand increase in the risk of being killed on the job. A firm employing 10,000 workers where the expected number of deaths is two per year, could save $200,000 - $3,000,000 per year in wages by cutting the number of fatalities in half.

Computing Consumer Surplus wo D No

Computing Consumer Surplus A The firms get A; the workers get B + C wo B wf D C No

Computing Consumer Surplus When we allow foreign labor, wages and the number of Americans working declines S wo wf D Nd Nt No

Computing Consumer Surplus A Firms get A+B+D+E Workers get C wo B B D E wf D C Nd Nt No

Computing Consumer Surplus A The total gain is D + E wo B B D E wf D C Nd Nt No

The Monopoly Suppose we have a a monopoly industry.

The Monopoly Suppose we have a a monopoly industry. The firm still has a MPP curve

The Monopoly Suppose we have a a monopoly industry. The firm still has a MPP curve However we are not interested in VMP = MPP * P But MRP = MPP *MR

The Monopoly The monopolist’s demand function is determined by MRP, not VMP. wo MRP= MPP x MR Lo

The Monopoly The monopolist’s demand function is determined by MRP, not VMP. Since MR < P, MRP < VMP. wo MRP= MPP x MR Lo

The Monopsonist A monopoly is a sole seller; a monopsonist is a sole buyer.

The Monopsonist A monopoly is a sole seller; a monopsonist is a sole buyer. As a monopolist worries about MR, a monopsonist worries about MCF

The Monopsonist S w N

The Monopsonist S w* w N N*

The Monopsonist S w* w N N*

The Monopsonist MCF S VMP w VMP N

The Monopsonist/Monopolist MCF S VMP MRP w w* VMP MRP N* N

Two Issues Is this exploitation?

Two Issues Is this exploitation? In the sense that the workers are not being paid the VMP, it is.

Two Issues Is this exploitation? Price Discrimination

Two Issues Is this exploitation? Price Discrimination In the sense that the workers are not being paid the VMP, it is. Price Discrimination Confidential salaries Moving expenses and hiring bonuses

End ©2003 Charles W. Upton