Chapter 9: Labor Trends, Wages and Immigration Guiding Question: How can workers best meet the challenges of a changing economy? Ch9.2: Why do some people earn more than others? Project:Is Immigration Good or Bad for the US Economy

Objectives Analyze how supply and demand in the labor market affect wage levels. Describe how skill levels and education affect wage levels.

Introduction Why do some people earn more than others? Examples: How many people are needed for that job? (demand for workers) How many people can do that job?(supply of workers) How much is their output (what they are producing) worth? Examples: NBA Player Computer Programmer Babysitter

Labor Market: Supply, Demand, Wage: Intro to Labor Market Just as each good/service has a market, the labor for each good/service has a market That means the labor market for engineers is different than the labor market for cashiers A labor market graph includes: Labor Supply Curve Labor Demand Curve Equilibrium wage and job level (output) Labor Economists focus on skills Workers with different skills compete in different labor markets Human Capital is the name of the Labor Market game!

Labor Market: Supply, Demand, Wage: Labor Demand Labor Demand is the hiring of workers by firms/government to produce goods/services In a competitive labor market, workers are usually paid according to the value of what they produce. This is called the productivity of labor More productive = higher wages Law of diminishing returns means MRP decreases as you hire more workers (downward sloping labor demand)

Labor Market: Supply, Demand, Wage: Labor Supply Labor Supply comes from workers looking for jobs Law of Supply: The higher the wage for a particular job, the larger the quantity of labor supplied. (upward sloping Labor Supply curve) Answers: 6 cooks will be hired at $12 an hour and 4 cooks will be hired at $16 an hour

Labor Market: Supply, Demand, Wage: Getting to Equilibrium Wage Based on Labor Demand (the firms), if each cook works a 40-hour work week, how many cooks will be hired at $8, $12, and $16 an hour? Based on Labor Supply (the workers), if each cook works a 40-hour work week, how many cooks will work for $8, $12, and $16 an hour? $8/hr: 8ppl $12/hr: 6ppl, $16/hr: 4ppl $8/hr: 4ppl $12/hr: 6ppl, $16/hr: 8ppl Answers: 6 cooks will be hired at $12 an hour and 4 cooks will be hired at $16 an hour 7

Equilibrium wage is the wage rate, or price of labor Labor Market: Supply, Demand, Wage: What is Equilibrium Wage? Equilibrium wage is the wage rate, or price of labor Labor demand equals labor supply Wages are stable (no shortage/surplus) Different Equilibrium wage for each different labor market Checkpoint Answer: The equilibrium wage is determined by where the supply of workers meets the demand for workers in the labor market.

Labor Market: Supply, Demand, Wage: What is Equilibrium Wage? What is equilibrium wage in our cook example? How many workers will be hired in equilibrium (assume 40hr week)? What happens if minimum wage is set at $16/hr? $12 per hour 6 workers Checkpoint Answer: The equilibrium wage is determined by where the supply of workers meets the demand for workers in the labor market. Labor surplus (S>D) of 4ppl 9

Wage, Education and Skill Levels If everyone has the same skill level Then, we are in one labor market and labor supply and demand will affect wage level Different people have different skills There is different labor demand for different skill levels Jobs are often categorized into four skill levels: Unskilled labor - cashier Semi-skilled labor – lab technician/mechanic Skilled labor – office worker, most college graduates Professional labor – doctors, teachers, lawyers

Wage, Education and Skill Levels Labor supply and demand varies greatly for workers with different skills Doctors, for example, who have extensive training and experience, create a shortage (demand for doctors > supply of doctors), and can therefore earn high wages Cashiers, who have limited specialized skills, earn low wages because there is a surplus create (supply of cashiers > cashier jobs)

Labor Market Scenario Analysis This chapter focuses on changes in labor market trends Analysis of labor market graph to see effect of changes on wages/jobs (same as before) Draw labor market graph (supply/demand) (p = wage, q = workers or hours) Did shock shift labor supply or demand? Shift right or left? Labor surplus or shortage? What happens to equilibrium wage and workers/hours?

Labor Market Scenario Analysis We are analyzing the labor market for construction workers. The housing market crash reduced the need for new housing construction. What is the impact on equilibrium wage and jobs for construction workers? Did shock shift labor supply or demand? Shift right or left? Labor surplus or shortage? What happens to equilibrium wage and workers/hours?

Labor Market Scenario Analysis We are analyzing the labor market for petroleum engineers. The huge growth in China/India/Brazil has led to massive increase in the demand for oil. This has led to tons of oil and gas exploration projects. What is the impact on the equilibrium wage and jobs for petroleum engineers? Did shock shift labor supply or demand? Shift right or left? Labor surplus or shortage? What happens to equilibrium wage and workers/hours?

Key Terms productivity of labor: the quantity of output produced by a unit of labor equilibrium wage: the wage rate that is set when the supply of workers meets the demand for workers in the labor market unskilled labor: work that requires no specialized skills, education, or training semi-skilled labor: work that requires minimal specialized skills and education

Key Terms, cont. skilled labor: work that requires specialized skills and training professional labor: work that requires advanced skills and education glass ceiling: an unofficial barrier that sometimes prevents some women and minorities from advancing to the top ranks of organizations dominated by white men