Download Lecture 26: The Labour Market

Microeconomics
Corso E
John Hey
Chapter 26
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The LABOUR MARKET
The supply of labour.
The demand for labour.
Equilibrium.
Minimum wage legislation?
Two questions for you
• An increase in the wage rate
implies an increase in the supply
of labour?
• Minimum wage legislation is a
Good Thing?
The supply of labour
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We use the analysis of Chapter 6
The space: (T,C)
T: free (non-working) time
C: consumption
The supply of labour – Lo where
Lo =24 – T
...depends upon the preferences.
Obviously both consumption and leisure
time are desirable (are both goods).
• Let us go to Maple…
The demand for labour
• We use the analysis of Chapters 11,
12 and 13.
• We begin in a space with...
• ... Ld the demand for labour on the
horizontal axis...
• ... and total Costs total and total
revenues on the vertical axis.
• Let us assume we are in a short
period with fixed costs equal to 5, and
the wage fixed at 1 per unit.
The optimality condition for the
demand for labour
• The slope of the total cost curve must be equal
to the slope of the total revenue curve.
• The slope of the total cost curve is equal to the
wage rate.
• The slope of the total revenue curve is equal to
the price of output multiplied by the marginal
product of labour.
• Hence the optimality condition: the real wage
rate (the wage rate divided by the price of
output) must be equal to the marginal product
of labour.
A minimum wage?
• What happens in this market if the
government introduces a minimum wage?
• Obviously at a level higher than the
equilibrium wage in the competitive
market.
Chapter 26
• Goodbye!