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Lecture 2After Mid
A Tour of the Labor Market 1998 2006Population in virtual country 270.2 million 301.0 million Minus: Pop. under 16, and -65.0 million -73.0 million
Armed forces and Incarcerated
Civilian Noninstitutional Pop. 205.2 million 228.0 million
Minus: Out of the Labor Force -67.6 million -76.6 million(above60 tears).
Civilian Labor Force 137.6 million 151.4 million
Employed 131.4 million 144.4 million
Unemployed 6.2 million 7.0 million
Slides Prepared By:Dr.Abdelmohsen Mostafa3
Labor force :
It is the number of population above a certain appropriate working age ( usually 18 years of age, whether
employed or not), and the pop above of 60 years)
Labor force = Population – (pop under 18 years of age + pop above 60 years of age).
Important rules
2- Labor force rate = Number of labor force
Total population
Slides Prepared By:Dr.Abdelmohsen Mostafa4
1-Labor force = unemployment + employed
Slides Prepared By:Dr.Abdelmohsen Mostafa5
4- Unemployment rate = Number of unemployed
Number of labor force
The participation rate =
PopulationtionalNoninstituForceLabor
(1998)67%205.2
137.6
PopulationnalinstitutioNon
ForceLabor
rationparticipatThe
)1998(%5.46.1372.6
ForceLaborUnemployed
ratentunemploymeThe
Total number of population = 10 million, population under 18 years =2.5 million, population above 60 years = 1.5 million, the rate of the
employees=40%. Requires: Calculate:
1- The labor force rate.2- The number of unemployment.
Labor as a
resource
A collection of people and firms who are
trading labor services.
The Labor market
like other markets in the economy, are
governed by the forces of supply and demand.
Labor markets
Job
A long-term contract between a firm and a household to provide
labor services.
PerfectlyCompetitive
Labor MarketCharacteristics
1-Large number of firms trying to hire an identical
type of labor
2-Numerous qualified people independently offering their services
3-Neither firms nor workers have control over the market wage
4-Perfect, costless information and labor
mobility
5- No barriers to entering or
leaving labor market.
The Market Demand For
LaborIndicates total number of workers all firms in a
labor market want to employ at each wage rate
Quantity of labor demanded is the total labor hours that all
the firms in the economy plan to hire during a given time period at a given real
wage rate.
The Demand for Labor
is the relationship between the
quantity of labor demanded and real
wage rate.
Demand for labor
19
At the lower level of real wage rate,
the quantity of labor demanded is greater.
20
The Firm’s Labor Demand Curve
Firm's Labor Demand Curve
W2
W1
B
A
n1 Number of workers
wage
n2
W2
W1
n3
w3 w3C
Labor Demand DeterminantsThe demand for labor depends on:
The main determinant of
labor demand is:
1- the wage rate, and:
6-22
Labor Demand will change if there are changes in:
2- Product demand
3- Productivity
4- Prices of other resources
5- Number of employers
6-23
Changes in product demand that increase (decrease)
the product price,
will increase (decrease) labor demand.
2- Product demand
6-24
3-ProductivityAn increase (decrease) in productivity will increase (decrease) labor demand, assuming that it does not
cause an offset in the product price.
6-25
an increase (decrease) in the price of a
substitute input will increase (decrease)
labor demand.
4-Prices of other resources
6-26
an increase (decrease) in the price of a
complement input will decrease (increase)
labor demand.
For gross complements :
6-27
5-Number of employers An increase (decrease) in the number of employers
will increase
(decrease) labor demand.
6-28
Market Labor Supply
Quantity of Labor Hours
Wag
e ra
temarket supply curve
are usually positively
sloped over normal wage
ranges.
S
Quantity of labor supplied is the number of labor hours that
all the households in the economy plan to work during:
The Supply of Labor
a given time anda given real wage rate.
is the relationship between the quantity of labor supplied and the
real wage rate ((all other influences on work plans
remain the same)).
The Supply of labor
The Supply of Labor
•The market supply for labor may be
upward sloping and backward bending.
6-32
Labor Supply Determinants
The main determinant of labor supply is:
1-the wage rate:
6-33
Labor Supply will change if there are
changes in the following factors:
6-34
Other wage rates Nonwage income
Preferences for work Number of qualified suppliers
Adult population: Time in school and training:
Immigration
6-35
Substitution Effect:At the lower portion of the supply curve, people
are willing to supply more labor hours
when wage increase.
labor supply curve will bend backwards at the higher
wage rate, indicating a negative relationship
between wage rate and labor supply quantity
Income Effect:
As people gets richer, they need time to spend their income. So they will take
time off from work to enjoy life. Less labor hours will be
supplied as a result.
If the income effect exceeds the
substitution effect• the supply curve is backward bending.
39
Income Effect <Substitution Effect
Backward-Bending Supply of Labor
Hours of Work per Day
Wage($ perhour)
Supply of Labor
Income Effect >Substitution
EffectIncome Effect
=Substitution Effect
6-40
Labor Supply Determinants
Other wage rates• If wages in other occupations rise
(fall), then labor supply will fall (rise).
Nonwage income• If nonwage income rises (falls), then
labor supply will fall (rise).
6-41
Preferences for work • If preferences for work increase (decrease), then labor supply will increase (decrease).
Number of qualified suppliers• An increase (decrease) in the
number of qualified workers will increase (decrease) labor supply.
1 .Adult population :
increase in population will increase work force, and
labor supply.
Other determinants of Labor supply are:
as more woman or retired people choose to work, labor supply increases.
2. Changes in tastes OR Preferences:
3. Time in school and training:
when people spend more time in school, the low
skill labor supply decrease, and high skill labor supply increases.
4- Changes in alternative opportunities
5- Immigration
Labor Market Equilibrium
Demand and Supply in Factor Markets
46
The labor market is in equilibrium: at:The equality of
quantity demanded and quantity supplied
Demand and Supply in Factor Markets
47
Equilibrium
employment, L
Labor Market Equilibrium
Supply
Wage (price of labor)
Quantity of Labor
0
Demand
Equilibrium wage,
W
If the wage rate exceeds the equilibrium
wage rate, there is a surplus of labor
and wage will fall.
If the wage rate is less than the equilibrium wage rate, there is a shortage of labor
and wage will rise.
Given the following data about
virtual country:Qds = 140 + 6 W ,
Qdl = 560 – 8 WQdl: The demand of labor
Qds :The supply of labor
W: Wage
Copyright © 2005 Pearson Addison-Wesley. All rights reserved. 16-52
Requires :1-Find the equilibrium wage.
2 -Number of employment level.3-Determined the effect of Labor
Unions entry to make minimum wage = $40 and $50 in hour.
16-53