FINALS ECO CH 7 LABOR MARKETS

• Demand for Labor

  Labor are inputs to a factor of production, in most cases, we hire labor to produce goods to sell. Labor markets, like any other markets, exist with the invisible hand at work, the forces of supply and demand.

  Consider an example of the Navotas Fish Market. The table on the next page shows the number of workers hired and the weekly output by the number of oval crates given the price and the wage.
• The Production Function

  The value of the marginal product of labor gives us the idea to decision makers on how much more income is expected for additional labor employed.
• Supply of Labor

  the reservation wage theory that says individuals would be choosing not to work when they value leisure more than the wage rate that they would be receiving from working.
• reservation wage is the minimum rate that a worker is willing to accept a specific job, at a given period of time, considering there is no change in individual's overall wealth, and marital status, length of unemployment, health, security, and disability issues.
• Individual Earnings and Wages

  If the demand for a certain good or service is booming, more of it are produced and offered in the market, and ultimately increase wages, we call this derived demand.
• There are some businesses that provide high wages to its employees compared to the market equilibrium, to motivate them to work and not leave the company (among other reasons). we call this efficiency wages.
• International Immigration

  Immigration/Immigrants- OFWs
• International Immigration

  The main economic benefits of immigration are the following:

  1. increases the national output, the GDP;
  2. enhances the specialization especially with highly skilled immigrants; and
  3. provide net economic benefit to the country.
• Wage discrimination happens considerably when there is monopsony-there is only one buyer of the labor offered, it can clearly distinguished who are favored and who are discriminated against, and an ostensible varied price elasticity of labor supply in different groups.
• Labor Market

  This may negatively impact the economy, as it tends to effect inefficiency and may cause market failure
• Human Development Index- indicates the average well being of the people in a country in a given period of time.
• Factors of production


  • Land
  • Labor
  • Capital
  • Entrepreneurship
• Labor


  The most important factor of production, with the largest share in almost all economies with the gross national earnings
• Labor market


  Operates by supplying a skill or talent that someone else would need or demand
• Roles in a labor market

  • Seller of labor
  • Buyer of labor
• Voluntary exchange of work


  An agreement that a certain price, that is the wage, the buyer agrees to the work and employs the seller of that work
• Labor market for professional athletes

  • More complicated than other labor markets
  • Follows the law of supply and demand
  • Supply of highly talented basketball players is paid way higher than an average worker
  • Their supply is scarce, the talent itself is limited
  • Demand for basketball players is high
  • They usually generate millions of revenue in merchandise and ticket sales
• Wages are determined by the skill or talent, if it is abundant and the demand is low, then the wage is also low, and vice versa
• This chapter talks about the demand for and supply of labor, individual earnings and wages, international immigration, labor market discrimination, and human development index
• An article about one of the largest labor accidents in the world as of today will be discussed as a case study
• Demand


  The link between the price of a product and the quantity demanded for it
• As the price increases, the quantity demanded decreases or vice versa
• There is a negative relationship between the price and the quantity
• A demand curve is a graphical representation of the demand
• MPL


  Maximum value of the marginal product of labor
• Production function in Navotas Fish Market

  1. Relationship between labor and amount of product obtained

  2. Labor input increases, product increases at a fast rate at the beginning and moves slowly, flatter, toward the rightmost part of the graph

  3. This is called diminishing marginal productivity
• Firms employ workers


  As long as the revenue generated by the output of a marginal worker exceeds the cost of that worker, i.e., until the worker's marginal revenue product is equal to the market wage rate
• Marginal product of labor declines


  Wage of all workers will fall
• Supply


  The link between the price of a product and the quantity supplied for it
• Supply


  • Presented in a table or schedule to appreciate the changes in quantity supplied as the price increases or decreases
  • All other things remain constant, ceteris paribus, as the price increases, the quantity supplied also increases or vice versa
  • There is a positive relationship between the price and the quantity
  • A supply curve is a graphical representation of the price and quantity supplied, and since the relationship is positive, the curve is also positively sloped or going up from left to right of the graph
• Individual Employer


  • Demand = Marginal Revenue Product
  • Supply of Labor = Wage
• Marginal Productivity Theory of Wages


  The theory that the wage rate is determined by the marginal product of labor
• Reservation wage


  The minimum rate that a worker is willing to accept for a specific job, at a given period of time, considering there is change in an individual's overall wealth, marital status, length of unemployment, health, and security and disability issues
• Reservation wage theory says individuals would be choosing not to work when they value leisure more than the wage rate that they would be receiving from working
• Demand for labor


  Downward sloping
• Supply of labor


  Upward sloping
• Equilibrium wage


  The point where labor demand and supply meet
• Wage rate


  The profit-maximizing level of individual employer, also known as the marginal resource cost (MRC)
• In a competitive labor market, the firm can pay to hire additional workers
• Change in demand


  Even if the price does not change, the demand curve shifts to the right