Lectures in Macroeconomics- Charles W. Upton Short Run Labor Demand

Labor Supply and Demand D S H* w*

Short Run Labor Demand More people reach working age D S H* w* S’ H’ w’

Short Run Labor Demand More people reach working age D S H* w* S’ H’ w’ The wage rate falls Total hours worked rise Hours per worker fall

Short Run Labor Demand An Alternative View D S H* w*

Short Run Labor Demand An Alternative View D S H* w* Y = AK  L 1- 

Short Run Labor Demand An Alternative View D S H* w* Y = AK  L 1- 

Short Run Labor Demand An Alternative View D S H* w* Y = AK  L 1-  There is a fixed demand for output. Knowing A, K and Y, we know L

Short Run Labor Demand An Alternative View D S H* w* Y=C+I+G No change in C, I or G = No change in D

Short Run Labor Demand An Alternative View D S H* w* Ergo, no change in total hours worked, just more workers working fewer hours

Short Run Labor Demand An Alternative View D S H* w* Ergo, no change in hours worked, just more workers working fewer hours There is a problem here

Short Run Labor Demand Labor Supply and Demand D S H* w*

Short Run Labor Demand Labor Supply and Demand D S H* w*

Short Run Labor Demand Labor Supply and Demand D S H* w* Firms want to hire the workers. A combination of lower wages and increased output does the job.

Short Run Labor Demand Labor Supply and Demand D S H* w* So where is the extra demand Firms want to hire the workers. A combination of lower wages and increased output does the job.

Short Run Labor Demand Labor Supply and Demand D S H* w* So where is the extra demand Firms want to hire the workers. A combination of lower wages and increased output does the job. As GDP rises, Income rises. That means more consumption, more investment, etc

Short Run Labor Demand Say’s Law Jean Baptiste Say –“Supply Creates its own Demand”

Short Run Labor Demand Does Say’s Law Work In time yes, absolutely. –There is controversy over whether it works immediately.

Short Run Labor Demand Does Say’s Law Work In time yes, absolutely. –There is controversy over whether it works immediately. We will assume Say’s Law here. –But, we shall return.

Short Run Labor Demand More people reach working age D S H* w* S’ H’ w’

Short Run Labor Demand More people reach working age D S H* w* S’ H’ w’ If you wish, think of this as a short run labor demand curve

Short Run Labor Demand More people reach working age D S H* w* S’ H’ w’ If you wish, think of this as a short run labor demand curve Possible, but remember our query “Does it fit the facts”?

Short Run Labor Demand More people reach working age D S H* w* S’ H’ w’ If you wish, think of this as a short run labor demand curve Possible, but remember our query “Does it fit the facts”? More interesting to work with short run labor supply

Short Run Labor Demand More people reach working age D S H* w* S’ H’ w’ If you wish, think of this as a short run labor demand curve Possible, but remember our query “Does it fit the facts”? More interesting to work with short run labor supply The Principle of Parsimony

Short Run Labor Demand End ©2004 Charles W. Upton. All rights reserved