Download Demand For Labor =MRP= VMPL= (Price(MR) x MP)

DEMAND OF LABOR
What is Demand for Labor?
Demand is the different quantities of workers that
businesses are willing and able to hire at different
wages.
What is the Law of Demand for Labor?
There is an INVERSE relationship between wage and
quantity of labor demanded.
2
Who demands labor?
•FIRMS demand labor.
•Demand for labor shows the quantities of
workers that firms will hire at different wage
rates.
•Firms will only pay employees a wage equal to or
less than that employees productivity.
Wage
•As wage falls, Qd increases.
•As wage increases, Qd falls.
DL
Quantity of Workers
3
Where do you get the Market Demand?
McDonalds Burger King
Other Firms
Market
Wage
QLDem
Wage
QLDem
Wage
QLDem
Wage
QLDem
$12
$10
$8
$6
$4
1
2
3
5
7
$12
$10
$8
$6
$4
0
1
2
3
5
$12
$10
$8
$6
$4
9
17
25
42
68
$12
$10
$8
$6
$4
10
20
30
50
80
P
P
$8
P
$8
$8
D
3
Q
P
$8
D
2
Q
D
25
Q
D
30
Q
Drawing the Demand
Curve for Factors
5
Demand=MRP
Why is it downward sloping?
Because of the law of
diminishing marginal
returns
Each additional factor is
less productive and
therefore is worth less
than the previous one
Wage Rate
$100
80
60
40
20
D=MRP
1
2
3
4
5
6
7
8
Quantity of Workers
Q
6
What happens if demand for the product
increases?
Wage Rate
$100
MRP increases causing
demand to shift right
80
60
40
D1=MRP1
20
D=MRP
1
2
3
4
5
6
7
8
Q
Quantity of Workers
7
Question?
• What could be factors that shift the MRP (Factor Demand)?
8
3 Shifters of Factor Demand
1.) Changes in the Demand for the Product (Change in
Price)
• Price increase of the product increases MRP and
demand for the factor. (and vice versa)
2.) Changes in Productivity
• Technological Advances increase Marginal Product
and therefore MRP/Demand.
3.) Changes in Price of Other Factors
• Substitute Resources
• Ex: What happens to the demand for assembly line workers
if price of robots falls?
• Complementary Resources
• Ex: What happens to the demand for nails if the price of
lumber increases significantly?
9
Use the following data:
Units of
Labor
Total
Product
(Output)
Price = $10 Wage = $20
Marginal
Product
Product
Price
(MP)
Marginal
Revenue
Product
Additional
Cost
per worker
0
0
0
0
0
7
10
1
7
70
20
10
10
2
17
100
20
7
10
3
24
70
20
3
10
4
27
30
20
2 change
10 if the
5
29
20 demand
20
How
would
this
1
10
6
30
10
20
for the good increased significantly?
-3
10
71. Price27of the good
-30
20
would
increase.
2. Value of each worker would increase.
10
Use the following data:
Units of
Labor
Total
Product
(Output)
0
1
2
3
4
5
6
7
0
7
17
24
27
29
30
27
Price = $100 Wage = $20
Marginal
Product
Product
Price
(MP)
7
10
7
3
2
1
-3
Marginal
Revenue
Product
0
100
100
100
100
100
100
100
11
Use the following data:
Units of
Labor
Total
Product
(Output)
0
1
2
3
4
5
6
7
0
7
17
24
27
29
30
27
Price = $100 Wage = $20
Marginal
Product
Product
Price
(MP)
7
10
7
3
2
1
-3
0
100
100
100
100
100
100
100
Marginal
Revenue
Product
0
700
1000
700
300
200
100
-300
Each
worker is
worth
more!!
THIS IS
DERIVED
DEMAND.
12
Use the following data:
Units of
Labor
Total
Product
(Output)
Price = $10 Wage = $20
Marginal
Product
Product
Price
(MP)
Marginal
Revenue
Product
Additional
Cost
per worker
0
0
0
0
0
7
10
1
7
70
20
10
10
2
17
100
20
7
10
3
24
70
20
3
10
4
27
30
20
2 this10change
5 How
29 would
20if the20
1
10
6
30
10 increased?
20
productivity of each worker
-3
10
27 Product
-30
20
1.7 Marginal
would
increase.
2. Value of each worker would increase.
13
Use the following data:
Units of
Labor
0
1
2
3
4
5
6
7
Total
Product
(Output)
0
70
170
240
270
290
300
270
Price = $10 Wage = $20
Marginal
Product
Product
Price
(MP)
70
100
70
30
20
10
-30
0
10
10
10
10
10
10
10
Marginal
Revenue
Product
0
700
1000
700
300
200
100
-300
Each
worker is
worth
more!
More
demand
for the
resource.
14
3 Shifters of Resource Demand
Identify the Resource and Shifter (ceteris paribus):
1. Increase in demand for microprocessors leads to a(n)
________ in the demand for processor assemblers.
2. Increase in the price for plastic piping causes the
demand for copper piping to _________.
3. Increase in demand for small homes (compared to big
homes) leads to a(n) _________ the demand for lumber.
4. For shipping companies, __________ in price of trains
leads to decrease in demand for trucks.
5. Decrease in price of sugar leads to a(n) __________ in
the demand for aluminum for soda producers.
6. Substantial increase in education and training leads to
an ___________ in demand for skilled labor.
15
3 Shifters of Resource Demand
Identify the Resource and Shifter (ceteris paribus):
1. Increase in demand for microprocessors leads to a(n)
________
increase in the demand for processor assemblers.
2. Increase in the price for plastic piping causes the
demand for copper piping to _________.
increase
3. Increase in demand for small homes (compared to big
decrease the demand for lumber.
homes) leads to a(n) _________
4. For shipping companies, __________
decrease in price of trains
leads to decrease in demand for trucks.
5. Decrease in price of sugar leads to a(n) __________
in
increase
the demand for aluminum for soda producers.
6. Substantial increase in education and training leads to
an ___________
increase in demand for skilled labor.
16
Factor Supply (Labor Supply)
17
SUPPLY OF LABOR
What is Supply for Labor?
Supply is the different quantities of individuals that are
willing and able to sell their labor at different wages.
What is the Law of Supply for Labor?
There is (Usually) DIRECT (or positive) relationship
between wage and quantity of labor supplied.
18
Labor Supply
•Supply of labor is the number of workers that
are willing to work at different wage rates.
•Higher wages can give workers incentives to
leave other industries or give up leisure
activities (Activities done outside of work)
Labor Supply
Wage
•As wage increases, Qs increases.
•As wage decreases, Qs decreases.
Quantity of Workers
19
Questions
• What could be shifters of factor supply (workers) (MRC)?
20
Factor Supply Shifters
Supply Shifters for Labor
1. Number of qualified workers
• Education, training, & abilities required
• Immigration
2. Government regulation/licensing
Ex: What if waiters had to obtain a license to serve food?
Immigration policies
3. Personal values regarding leisure time and societal
roles.
Ex: Why did the US Labor supply increase during WWII?
Why do some occupations get paid more
than others?
With your partner...
Use supply and demand analysis to explain why surgeons
earn an average salary of $137,050 and cashiers earn
$11,000. How could wages change for either
profession?
With your partner...
Use supply and demand analysis to explain why surgeons
earn an average salary of $137,050 and cashiers earn
$11,000. How could wages change for either
profession?
Supply and Demand For Surgeons
Supply and Demand For Fast Food
Cashiers
SL
Wage Rate
Wage Rate
Quantity of Workers
SL
DL
DL
Quantity of Workers
Industry in Equilibrium
Wage (the price of labor) is set by the market.
EX: Supply and Demand for Fast Food Workers
Wage
Labor Supply
$8.75hr
THE
Labor Demand =
MRP
WAGE RATE
Quantity of Workers
24