Lectures in Macroeconomics- Charles W. Upton Determining Wage Rates

Labor Supply and Demand D S H* w*

Determining Wage Rates Labor Supply and Demand D H w

Determining Wage Rates Labor Supply and Demand D H w Demand for hours of work. All workers are alike, so an hour of work is an hour of work.

Determining Wage Rates Labor Supply and Demand S h w Each worker supplies h hours of work. The higher the wage rate, the more hours supplied.

Determining Wage Rates Labor Supply and Demand S h w A major simplification; we come back to this supply curve in subsequent lectures.

Determining Wage Rates Labor Supply and Demand S h w Total supply is H =hN*

Determining Wage Rates Labor Supply and Demand D S H* w*

Determining Wage Rates Assumptions All N* workers are alike w* is the hourly wage rate Each worker spends h* = H*/N* hours in work

Determining Wage Rates A Spending Spree D S H* w* D’ H’ w’ Perhaps the government starts to spend more. Perhaps people become more optimistic about the future.

Determining Wage Rates A Spending Spree D S H* w* D’ H’ w’

Determining Wage Rates A Spending Spree D S H* w* D’ H’ w’ Wage Rates Up

Determining Wage Rates A Spending Spree D S H* w* D’ H’ w’ People work harder.

Determining Wage Rates A Spending Spree D S H* w* D’ H’ w’ People make more money

Determining Wage Rates A Spending Spree D S H* w* D’ H’ w’ People make more money Many make this argument to support increased government spending when times are bad.

Determining Wage Rates A Spending Spree D S H* w* D’ H’ w’ People make more money Many make this argument to support increased government spending when times are bad. As we shall see there is more to the story.

Determining Wage Rates Labor Supply and Demand D S H* w* We will apply this to some additional cases

Determining Wage Rates Labor Supply and Demand D S H* w* We will apply this to some additional cases More people reach working age

Determining Wage Rates More people reach working age D S H* w* S’ H’ w’

Determining Wage Rates More people reach working age D S H* w* S’ H’ w’ The wage rate falls Total hours worked rise

Determining Wage Rates More people reach working age D S H* w* S’ H’ w’ The wage rate falls Total hours worked rise Hours per worker fall

Determining Wage Rates More people reach working age D S H* w* S’ H’ w’ The wage rate falls Total hours worked rise Hours per worker fall With hours per worker falling and wage rates falling, income per worker falls, just as Malthus predicted.

Determining Wage Rates More people reach working age D S H* w* S’ H’ w’ Not everyone works. Suppose more people worked. Same effects.

Determining Wage Rates More people reach working age D S H* w* S’ H’ w’ Not everyone works. Suppose more people worked. Same effects. Factoid During the 1930’s this argument was used in support of social security and against women working

Determining Wage Rates More people reach working age D S H* w* S’ H’ w’ Not everyone works. Suppose more people worked. Same effects. Factoid During the 1930’s this argument was used in support of social security and against women working The fewer people working, the higher the wages for “real” workers.

Determining Wage Rates New technology, more capital D S H* w* D’ H’ w’

Determining Wage Rates New technology, more capital D S H* w* D’ H’ w’ Wage rates up

Determining Wage Rates New technology, more capital D S H* w* D’ H’ w’ Wage rates up People work harder

Determining Wage Rates New technology, more capital D S H* w* D’ H’ w’ Wage rates up People work harder People make more money

Determining Wage Rates End ©2004 Charles W. Upton. All rights reserved