Lectures in Microeconomics-Charles W. Upton Topics in Labor Supply and Demand

Equilibrium w H S LR S SR The intersection of supply and demand determines wage rates and hours worked. D LoLo wowo

Topics in Labor Supply and Demand A Shift in Demand w H S LR S SR Now suppose the demand curve shifts to the right D D’ LoLo wowo

Topics in Labor Supply and Demand The Short Term Response w H S LR S SR D D’ LoLo L1L1 w1w1 wowo Now suppose the demand curve shifts to the right If people perceive this as a temporary shift, we move along the SR labor supply curve.

Topics in Labor Supply and Demand The Short Term Response w H S LR S SR D D’ LoLo L1L1 w1w1 wowo Now suppose the demand curve shifts to the right If people perceive this as a temporary shift, we move along the SR labor supply curve. Wages go up and people work more hours

Topics in Labor Supply and Demand A Permanent Shift in Demand w H S LR S SR D D’ LoLo L2L2 w2w2 wowo If people perceive this as a permanent shift, we move along the LR labor supply curve.

Topics in Labor Supply and Demand A Permanent Shift in Demand w H S LR S SR D D’ LoLo L2L2 w2w2 wowo If people perceive this as a permanent shift, we move along the LR labor supply curve. Wages go up but people work fewer hours

Topics in Labor Supply and Demand Intersection in Two Markets w S LR D w S SR w Skilled Unskilled

Topics in Labor Supply and Demand A Shift in Productivity w S LR S SR D w S LR S SR D w Now suppose a new technology favors skilled workers

Topics in Labor Supply and Demand Initial Impact on Hours and Wages w S LR S SR D w S LR S SR D w If skilled workers adjust their perception they work harder and wages rise

Topics in Labor Supply and Demand Second Impact on Hours and Wages w S LR S SR D w S LR S SR D w If skilled workers adjust their perception they work harder and wages rise As they change their perception, they move to the LR labor supply curve

Topics in Labor Supply and Demand Second Impact on Hours and Wages w S LR S SR D w S LR S SR D w If skilled workers adjust their perception they work harder and wages rise As they change their perception, they move to the LR labor supply curve Wages rise even more as hours worked declined

Topics in Labor Supply and Demand The Unskilled Market w S LR S SR D w S LR S SR D w There is a secondary effect. The demand for unskilled workers decline

Topics in Labor Supply and Demand The Unskilled Market w S LR S SR D w S LR S SR D w There is a secondary effect. The demand for unskilled workers decline Their wage rate declines and they work longer hours

Topics in Labor Supply and Demand Compensating Differentials Day and Night Differentials.

Topics in Labor Supply and Demand Compensating Differentials Day and Night Differentials. –One study estimates that, in 1984, the average shift differential for night manufacturing work was 30 ¢ an hour, when the average wage rate in manufacturing was $9.18

Topics in Labor Supply and Demand Compensating Differentials Day and Night Differentials. High Risk versus Low Risk Jobs

Topics in Labor Supply and Demand Compensating Differentials Day and Night Differentials. High Risk versus Low Risk Jobs –There are estimates that workers receive between $20 and $300 more per year for every one in ten thousand increase in the risk of being killed on the job.

Topics in Labor Supply and Demand Compensating Differentials Day and Night Differentials. High Risk versus Low Risk Jobs –There are estimates that workers receive between $20 and $300 more per year for every one in ten thousand increase in the risk of being killed on the job. – A firm employing 10,000 workers where the expected number of deaths is two per year, could save $200,000 - $3,000,000 per year in wages by cutting the number of fatalities in half.

Topics in Labor Supply and Demand End ©2006 Charles W. Upton