Graph copyright © 2003 by Pearson Education, Inc. Trend in the Overall Unemployment Rate Feb 2003: 5.8%

Graph copyright © 2003 by Pearson Education, Inc. Positive Omitted Variable Bias Don’t realize that have 2 types of workers. Problem is that young workers both earn less and quit more. Estimated slope is too steep.

Demand Shifts Out Graph by Harcourt, Inc. Due to Changes in: Technology, Prices of Other Inputs, Demand for Output

Supply Shifts Out Graph by Harcourt, Inc. Due to Changes in: Wages in Other Markets, Unearned Income, Job Conditions, Population

Total, Average and Marginal Product Graph by Harcourt, Inc. Marginal product is slope of total product. Average product is rising when marginal product is above, falling when marginal product is below. Marginal product intersects average product at its maximum.

Marginal Revenue Product, Labor Demand Graph by Harcourt, Inc. Marginal Revenue Product = MR*MP. Labor Demand is the downward sloping portion of Marginal Revenue Product.

Short-Run Demand Curve for the Market Graph by Harcourt, Inc. Unlike in product market, don’t just add up individual demands. A lower wage implies a lower output price, decreasing MRP and shifting in each firm’s demand curve so at W 2 end up at the star. The resulting market demand is thus steeper either firm demand.

Perfect Competition – the Market and the Firm Graph by Harcourt, Inc. Too high of a wage (W 2 ) and excess supply of labor results, putting downward pressure on wages. Too low of a wage (W 1 ) and excess demand of labor results, putting upward pressure on wages. At W E the market is in equilibrium and firms are wage takers.

Monopsony – i.e. only one employer Graph by Harcourt, Inc. Marginal is always above average when average is rising (supply is ACL). Intuitively, MCL is above supply because the firm must raise all wages to entice more workers into the market.

A Minimum Wage with an Uncovered Sector Graph by Harcourt, Inc. In the covered sector, minimum wage, W 2, is above equilibrium so there is an excess supply of labor (L 3 – L 2 ). If there is an uncovered sector, these workers will move into it, shifting out demand and lowering the wage to W 3. Results inefficient – W 1 in both sectors maximized output.

A Minimum Wage with a Shift in Demand Graph by Harcourt, Inc. If the extra money earned with minimum wage W 2 increases demand for output and labor demand shifts out, then employment could increase.

A Minimum Wage with a Monopsony Graph by Harcourt, Inc. With minimum wage W 2, MCL becomes flat until C and then jumps up to D and follows the original MCL. Employment thus increases to L 2 where MRP=MCL The competitive wage is W 2, but the monopsony wage is W 1. If a minimum wage is set at W 2, the competitive outcome is achieved.