Lecture 2 After Mid

A Tour of the Labor Market Population in virtual country million million Minus million million Minus: Pop. under 16, and million million Armed forces and Incarcerated Civilian Noninstitutional Pop Civilian Noninstitutional Pop million million Minus million million Minus: Out of the Labor Force million million (above60 tears). Civilian Labor Force137.6 million million Employed Employed131.4 million million Unemployed Unemployed 6.2 million 7.0 million

Slides Prepared By:Dr.Abdelmohsen Mostafa3 Labor force : It is the number of population above a certain appropriate working age It is the number of population above a certain appropriate working age ( usually 18 years of age, whether employed or not), and the pop above of 60 years) ( usually 18 years of age, whether employed or not), and the pop above of 60 years) Labor force = Population – (pop under 18 years of age + pop above 60 years of age).

Important rules 2- Labor force rate = Number of labor force Number of labor force Total population Total population 2- Labor force rate = Number of labor force Number of labor force Total population Total population Slides Prepared By:Dr.Abdelmohsen Mostafa4 1-Labor force = unemployment + employed + employed

Slides Prepared By:Dr.Abdelmohsen Mostafa5 4- Unemployment rate = Number of unemployed Number of unemployed Number of labor force Number of labor force 4- Unemployment rate = Number of unemployed Number of unemployed Number of labor force Number of labor force The participation rate =

Total number of population = 10 million, population under 18 years =2.5 million, population above 60 years = 1.5 million, the rate of the employees=40%. Requires: Calculate: Requires: Calculate: 1- The labor force rate. 1- The labor force rate. 2- The number of unemployment.

Labor as a resource

A collection of people and firms who are trading labor services A collection of people and firms who are trading labor services. The Labor market market

like other markets in the economy, are governed by the forces of supply and demand. Labor markets

Job A long-term contract between a firm and a household to provide labor services A long-term contract between a firm and a household to provide labor services.

Perfectly Competitive Labor Market Characteristics Perfectly Competitive Labor Market Characteristics

1-Large number of firms trying to hire an identical type of labor 2-Numerous qualified people independently offering their services

3-Neither firms nor workers have control over the market wage 4-Perfect, costless information and labor mobility

5- No barriers to entering or leaving labor market.

The Market Demand For Labor Indicates total number of workers all firms in a labor market want to employ at each wage rate

Quantity of labor demanded is the total labor hours that all the firms in the economy plan to hire during a given time period at a given real wage rate. The Demand for Labor

is the relationship between the quantity of labor demanded and real wage rate. Demand for labor

19 At the lower level of real wage rate, the quantity of labor demanded is greater. the quantity of labor demanded is greater.

20 The Firm’s Labor Demand Curve Firm's Labor Demand Curve W2 W1 B A n1 n1n1 n1 Number of workers wage n2 n2n2 n2 W2 W2 W1 n3n3n3n3 w3w3w3w3 w3w3w3w3 C

Labor Demand Determinants The demand for labor depends on: The main determinant of labor demand is: 1- the wage rate, and:

6-22 Labor Demand will change if there are changes in: 2- Product demand 3- Productivity 4- Prices of other resources 5- Number of employers Labor Demand will change if there are changes in: 2- Product demand 3- Productivity 4- Prices of other resources 5- Number of employers

6-23 Changes in product demand that increase (decrease) the product price, will increase (decrease) labor demand. will increase (decrease) labor demand. 2- Product demand

Productivity 3-Productivity An increase (decrease) in productivity will increase (decrease) labor demand, assuming that it does not cause an offset in the product price.

6-25 an increase (decrease) in the price of a substitute input will increase (decrease) labor demand. 4-Prices of other resources

6-26 an increase (decrease) in the price of a complement input will decrease (increase) labor demand. will decrease (increase) labor demand. For gross complements :

Number of employers 5-Number of employers An increase (decrease) in the number of employers will increase (decrease) labor demand. will increase (decrease) labor demand.

6-28 Market Labor Supply Quantity of Labor Hours Wage rate market supply curve are usually positively sloped over normal wage ranges. S

Quantity of labor supplied is the number of labor hours that all the households in the economy plan to work during: The Supply of Labor a given time and a given real wage rate. a given time and a given real wage rate.

is the relationship between the quantity of labor supplied and the real wage rate ((all other influences on work plans remain the same)). The Supply of labor

The Supply of Labor The market supply for labor may be upward sloping and backward bendingThe market supply for labor may be upward sloping and backward bending.

6-32 Labor Supply Determinants The main determinant of labor supply is : 1-the wage rate:

6-33 Labor Supply will change if there are changes in the following factors :

6-34  Other wage rates  Nonwage income  Preferences for work  Number of qualified suppliers  Adult population :  Time in school and training:  Immigration

6-35 Substitution Effect: At the lower portion of the supply curve, people are willing to supply more labor hours when wage increase.

labor supply curve will bend backwards at the higher wage rate, indicating a negative relationship between wage rate and labor supply quantity labor supply curve will bend backwards at the higher wage rate, indicating a negative relationship between wage rate and labor supply quantity Income Effect :

As people gets richer, they need time to spend their income. So they will take time off from work to enjoy life. Less labor hours will be supplied as a result.

If the income effect exceeds the substitution effect the supply curve is backward bending the supply curve is backward bending.

39 Income Effect < Substitution Effect Effect Backward-Bending Supply of Labor Hours of Work per Day Wage ($ per hour) Supply of Labor Income Effect > Substitution Effect Income Effect = SubstitutionEffect Substitution Effect

6-40 Labor Supply Determinants Other wage rates If wages in other occupations rise (fall), then labor supply will fall (rise).If wages in other occupations rise (fall), then labor supply will fall (rise). Nonwage income If nonwage income rises (falls), then labor supply will fall (rise).If nonwage income rises (falls), then labor supply will fall (rise).

6-41 Preferences for work If preferences for work increase (decrease), then labor supply will increase (decrease). If preferences for work increase (decrease), then labor supply will increase (decrease). Number of qualified suppliers An increase (decrease) in the number of qualified workers will increase (decrease) labor supply.An increase (decrease) in the number of qualified workers will increase (decrease) labor supply.

1. Adult population : increase in population will increase work force, and labor supply. Other determinants of Labor supply are:

as more woman or retired people choose to work, labor supply increases. 2. Changes in tastes OR Preferences :

3. Time in school and training: when people spend more time in school, the low skill labor supply decrease, and high skill labor supply increases.

4- Changes in alternative opportunities 5- Immigration 4- Changes in alternative opportunities 5- Immigration

Labor Market Equilibrium Demand and Supply in Factor Markets 46

The labor market is in equilibrium: at: The equality of quantity demanded and quantity supplied Demand and Supply in Factor Markets 47

Equilibrium employment, L Labor Market Equilibrium Supply Wage (price of labor) Quantity of Labor 0 Demand Equilibrium wage, W

If the wage rate exceeds the equilibrium wage rate, there is a surplus of labor and wage will fall. If the wage rate exceeds the equilibrium wage rate, there is a surplus of labor and wage will fall.

If the wage rate is less than the equilibrium wage rate, there is a shortage of labor there is a shortage of labor and wage will rise. and wage will rise. If the wage rate is less than the equilibrium wage rate, there is a shortage of labor there is a shortage of labor and wage will rise. and wage will rise.

Given the following data about virtual country : Qds = W, Qdl = 560 – 8 W Qdl = 560 – 8 W Qdl: The demand of labor Qds :The supply of labor W: Wage W: Wage

Copyright © 2005 Pearson Addison-Wesley. All rights reserved Requires: 1-Find the equilibrium wage. 2- Number of employment level. 3-Determined the effect of Labor Unions entry to make minimum wage = $40 and $50 in hour.

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