Chapter 8: Labor Markets Contemporary Economics: An Applications Approach By Robert J. Carbaugh 1st Edition Chapter 8: Labor Markets

Market for apple pickers Labor Market Equilibrium Market for apple pickers S0 Wage ($ per week) A D0 Carbaugh, Chap. 8

A firm’s demand schedule for labor Labor Market Equilibrium A firm’s demand schedule for labor Labor demand curve Labor demand schedule Labor Total Marginal Product Value of input product Product Price Marginal (workers (boxes per (boxes per Product per week) week) week) 0 0 1 90 90 $10 $900 2 170 80 10 800 3 240 70 10 700 4 300 60 10 600 5 350 50 10 500 6 390 40 10 400 Wage ($ per week) A Demand = value of the marginal product Carbaugh, Chap. 8

Changes in the market supply & demand for labor Labor Market Equilibrium Changes in the market supply & demand for labor Increased supply of labor Increased demand for labor S0 Wage ($ per week) Wage ($ per week) S0 B S1 A A B D1 D0 D0 Carbaugh, Chap. 8

Effects of a minimum wage Labor Market Equilibrium Effects of a minimum wage Higher wages cause job losses Shock effect moderates job losses Wage rate ($ per hour) Market surplus S0 Wage rate ($ per hour) S0 B C B D Wage floor Wage floor A A Job losers New entrants who cannot find jobs Kept jobs Job losers D1 D0 D0 Carbaugh, Chap. 8

Union methods to increase wages Labor Unions Union methods to increase wages Increase the demand for labor Decrease the supply of labor S1 S0 S0 Wage rate ($ per hour) Wage rate ($ per hour) B B A A D1 D0 D0 Carbaugh, Chap. 8

Effects of an industrial union Labor Unions Effects of an industrial union Unionized market (Ford, GM, DaimlerChrysler) Non-unionized market (Honda) Wage rate ($ per hour) Wage rate ($ per hour) Market surplus S0 S0 S1 B C Wage floor A A B D0 D0 Carbaugh, Chap. 8

Import competition and domestic workers Impact of Trade and Immigration Import competition and domestic workers S0 Wage rate ($ per hour) C B Wage floor A D D1 D0 Carbaugh, Chap. 8

Effects of labor migration from Mexico to the US Impact of Trade and Immigration Effects of labor migration from Mexico to the US United States Mexico SUS SUS' SMexico' SMexico Wage rate ($ per day) Wage rate ($ per day) A B B A D0 D0 7 7 Carbaugh, Chap. 8