1. Labor Supply Mr. Way, Economics, 3/22/12 12.4.3 Discuss wage differences among jobs and professions, using the laws of demand and supply and the concept of productivity.

2. What is the labor supply? It is the sum total of all the hours people are willing to provide for every wage level. In simple terms, the number of people who are willing and able to work. Labor supply can apply to the entire country, or a particular field.

3. Size of Labor Supply When there are very few people in the labor supply, those people can demand high wages for their labor, because they have no competition. When there are very many people in the labor supply, each person cannot ask for much because they’ll be out-bid by somebody willing to work for less.

4. Effects of Changes in Labor Supply As with any supply curve, increasing available supply will lower prices (wages) and increase quantity of hours worked. A decrease in supply will increase prices (wages), and decrease the quantity of hours worked.

5. Factors affecting labor supply Population size –Immigration/emigration –Birth rate –Death rate Retirement age Social programs for unemployed Cultural expectations

6. Calculating Price of Labor Employers want to maximize the profit they make from each worker, So they’ll only hire workers whose productivity is higher than their cost. Additionally, they will force workers to compete against each other to drive down the wage they have to pay. Wages are high for productive, scarce employees. Low for unproductive, plentiful ones.

7. Not all workers compete in the same market The labor market for rocket scientists usually doesn’t overlap much with the market for burger flippers. Highly “productive” workers usually only compete with other “productive” workers. “Wage-earners” generally only compete with other “wage earners.”

8. College and the myth of higher earning potential When studying social mobility, some researchers found that college graduates were more likely to move from poor to rich. Their conclusion was that in order to make everyone rich, we just need everyone to go to college. Their theory ignored a few important concepts:

9. College and the myth of higher earning potential They confused correlation and cause – was college making people successful, or was success making people go to college? Also, they ignored the laws of supply and demand. Increasing the number of college graduates drastically increased the labor supply for jobs requiring a degree

10. College and the myth of higher earning potential When so many people have degrees, they end up competing against so many others that the wage increase for a degree becomes tiny. If you go to college for money, make sure you pick a major that most people aren’t doing. Your classmates are your future competition. Pick a field that has a carefully limited supply, like doctor or lawyer.

11. Writing Prompt Do you think that the way we decide how wages are calculated is fair? Why do you think researchers (employed by universities) would promote the idea of college for everybody? Are you planning to go to college? What are you planning to study? How much will it cost you, and how much will it pay back?