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
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
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”