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Lecture Principles of microeconomics - Chapter 13: Labour markets

This chapter introduces you to labour markets, and the demand and supply of labour. You will also learn about the different outcomes when many firms or when only one firm are employing labour in a given market. | Labour Markets and the Public Sector Part 4 Slide 13 - What is Part 4 about? Slide 13 - Labour Markets (Ch. 13): Preview Slide 13 - The Economics of Public Policy (Ch. 14): Preview Slide 13 - Public Goods and Taxation (Ch. 15): Preview Slide 13 - Income Distribution (Ch. 16): Preview Slide 13 - Labour Markets Slide 13 - What is Chapter 13 about? Slide 13 - I. Equilibrium in the Labour Market Slide 13 - Characteristics of Labour Markets Sale of human labour is different from the sale of other goods Sale of goods implies we give up any future claim we have on it But we merely “rent” labour services It is illegal to sell ourselves into slavery “People are different” - heterogeneity means labour differs in quality Motivation is essential to productivity Slide 13 - How Different are Labour Markets? Supply and demand are still the key analytic tools Supply = Demand determines equilibrium wage and quantity Shifts in the SS & DD curves are analogous to | Labour Markets and the Public Sector Part 4 Slide 13 - What is Part 4 about? Slide 13 - Labour Markets (Ch. 13): Preview Slide 13 - The Economics of Public Policy (Ch. 14): Preview Slide 13 - Public Goods and Taxation (Ch. 15): Preview Slide 13 - Income Distribution (Ch. 16): Preview Slide 13 - Labour Markets Slide 13 - What is Chapter 13 about? Slide 13 - I. Equilibrium in the Labour Market Slide 13 - Characteristics of Labour Markets Sale of human labour is different from the sale of other goods Sale of goods implies we give up any future claim we have on it But we merely “rent” labour services It is illegal to sell ourselves into slavery “People are different” - heterogeneity means labour differs in quality Motivation is essential to productivity Slide 13 - How Different are Labour Markets? Supply and demand are still the key analytic tools Supply = Demand determines equilibrium wage and quantity Shifts in the SS & DD curves are analogous to shifts in output markets Slide 13 - Value of Marginal Product Marginal product of labour The additional output a firm gets by employing one additional unit of labour MPL Value of marginal product of labour The dollar value of the additional output a firm gets by employing one additional unit of labour Denoted by: V MPL Slide 13 - How Many Workers to Hire? Assume firm has a given capital stock. Issue: How many units to produce? How much labour to hire ? Cost-benefit principle, says “produce until the marginal benefit equals the marginal cost” “hire more workers until the marginal benefit equals the marginal cost” Slide 13 - Table 13.1 Employment and Productivity in a Woodworking Company (P = $20) Slide 13 - Wage and Salary Determination in Competitive Labour Markets When a firm can hire as many workers as it wants at a given market wage, it will increase hiring until VMPL equals the wage Note: since firms know that productivity varies, wages will depend on .