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The Role of Labor
Chapter 9 Sections 1 & 2
Labor, the human effort that produce
goods and services, is subject to the same
forces of demand and supply that govern
the rest of the economy.
 The value for labor depends on the value
of job

The Role of Labor
Labor: Demand and Supply
 Price of land, labor, capital,
entrepreneurship are production costs
 Price of labor is wages-payment workers
receive for their work
 Wages are governed by supply and
demand
◦ Equilibrium wage-number of workers needed
equals number available.
How Are Wages Determined?
Demand For Labor
 Wages reflect productivity’
 Producer’s demand for labor is derived
demand-demand based on its contribution to
the final product
Supply of Labor
 More workers willing to work at higher wages
◦ Supply curve of labor is upward sloping
Equilibrium Wage
 Wages gravitate toward equilibrium
◦ Price at which there neither surplus or shortage
Labor: Demand and Suppy
Wage rates- rates of pay for specific jobs
 Rates determined by supply and demand
 Supply and demand influenced by four
factors:

◦ Human capital-knowledge and skills that
enable workers to be productive
◦ Working Conditions
◦ Discrimination in Workplace
◦ Government Actions
Why Do Wage Rates Differ?
Factors


Factor 1:Human Capital
◦ Unskilled: house cleaning,
sanitation
◦ Semiskilled: construction or
clerical
◦ Skilled: Plumbers, Electricians
◦ Professional: Doctor, Attorney
◦ Skilled Worker: high demand
and productivity, low supply
high wages
Factor 2
◦ High wages paid for
dangerous or unpleasant jobs
◦ Advantages may make up for
low wages
Factors

Factor 3:Discrimination
◦ Wage discrimination
based on race, ethnicity,
gender, or other factors
◦ Glass-Ceiling – unseen
barriers preventing
skilled workers from
advancing

Factor 4: Govt Actions
◦ Minimum Wage-lowest
legally allowed wage for
one hour of work
Why Do Wage Rates Differ?

A Changing Labor Force
◦ 1950’s workers planned to work for the sme
company most of their life
◦ Today few workers stay with the same
company
◦ Civilian Labor Force- is people 16 or older who
are employed or looking for work
◦ Since 1950’s, many women have entered the
workforce
◦ Workforce is better educated
Trend’s in Today’s Labor Market

Occupations grouped into three economic
sectors
◦ primary: Jobs related directly to natural
resources
◦ Secondary: jobs producing goods or processing
raw material
◦ Tertiary: service-industry jobs

Ten fasted-growing occupations are
service related, most medical
Changing Occupations
Outsourcing-contracting with outside
company for goods and services
 Insourcing- foreign companies establishes
operations in the U.S.
 Both practices tied to trends toward
service, technology-related jobs

Globalization and Jobs




Telecommuting- working away from the
office, using technology
Contingent employment- temporary or parttime work
Independent contractors-sells services to
businesses on contract basis
Working at the office from home
◦
◦
◦
◦
Less stress, flexible hours
Larger labor pool, more productive
Less pollution
Interferes with social life
Changes in the Way People Work
Vocabulary
Wages
Payment workers receive for their
work
Equilibrium Wage
Numbers of workers needed equals
number available
Derived Demand
Demand based on its contribution to
the final project
Wage Rate
Rate of pay for specific jobs
Human Capital
Knowledge and skills that enable
workers to be productive
Glass Ceiling
Unseen barriers preventing skilled
workers from advancing
Minimum Wage
Lowest legally allowed wage for one
hour of work
Vocabulary
Civilian Labor Force
People 16 or older who are employed
or looking for work
Outsourcing
Contracting with outside country for
goods and services
Insourcing
Foreign companies establish
operations in the U.S.
Telecommuting
Working away fro the office, using
technology
Independent Contractors
Sells services to businesses on
contract basis