hubbard01_instructorppt16.ppt

The Markets for Labor andOther Factors of Production,2 of 34,After studying this chapter,you should be able to:Explain how firms choose the profit-maximizing quantity of workers to employ.Explain how people choose the quantity of labor to supply.Explain how equilibrium wages are determined in labor markets.Use demand and supply analysis to explain why compensating differentials,discrimination,and labor unions cause wages to differ.Discuss the role personnel economics can play in helping firms deal with human resources issues.Show how equilibrium prices are determined in the markets for capital and natural resources.,Why Are the New York MetsPaying Carlos Beltran a$17 Million Salary?,LEARNING OBJECTIVES,wages are determined in the labor market by the demand and supply of labor,3 of 34,The Markets for Labor and Other Factors of Production,Factors of production Labor,capital,natural resources,and other inputs used to produce goods and services.,4 of 34,The Demand for Labor,Derived demand The demand for a factor of production that is derived from the demand for the good the factor produces.,5 of 34,The Demand for Labor,The Marginal Revenue Product of Labor,Marginal product of labor The additional output a firm produces as a result of hiring one more worker.Marginal revenue product of labor(MRP)The change in the firms revenue as a result of hiring one more worker.,6 of 34,The Demand for Labor,The Marginal Revenue Product of Labor,16-1,7 of 34,The Demand for Labor,The Marginal Revenue Product of Labor,8 of 34,Hiring Decisions by a Firm That Is a Price Maker,16-1,9 of 34,The Demand for Labor,Factors That Shift the Labor Demand Curve,The four most important factors that cause the labor demand curve to shift are the following:Increases in human capital.Human capital The accumulated training and skills that workers possess.Changes in technology.Changes in the price of the product.Changes in the quantity of other inputs.,10 of 34,The Supply of Labor,16-2,16-3,11 of 34,The Supply of Labor,Factors That Shift the Labor Supply Curve,The three most important variables that cause the labor supply curve to shift are the following:Increases in population.Changing demographics.Changing alternatives.,12 of 34,Equilibrium in the Labor Market,16-4,13 of 34,Equilibrium in the Labor Market,The Effect on Equilibrium Wages of a Shift in Labor Demand,14 of 34,Will Your Future Income Depend on Which Courses You Take in College?,16-1,How does a college degree affect your future earnings?,15 of 34,Equilibrium in the Labor Market,The Effect on Equilibrium Wages of a Shift in Labor Supply,16-6,16 of 34,Why Didnt the Great Immigration Waves of the Early Twentieth Century Cause Wages to Fall?,16-2,In the early 20th century,wages rose as technological change increased the demand for labor enough to offset the increase in labor supply resulting from immigration.,17 of 34,Explaining Differences in Wages,16-7,Remember that Prices and Wages Are Determined at the Margin,18 of 34,Technology and the Earnings of“Superstars”,16-3,Why does Julia Roberts earn more today relative to the typical actor than stars did in the 1940s?,19 of 34,Explaining Differences in Wages,Compensating Differentials,Compensating differentials Higher wages that compensate workers for unpleasant aspects of a job.,Discrimination,Economic discrimination Paying a person a lower wage or excluding a person from an occupation on the basis of an irrelevant characteristic such as race or gender.,20 of 34,Explaining Differences in Wages,Discrimination,21 of 34,Discrimination,Table 16-2,Why Do White Males Earn More Than Other Groups?,Explaining Differences in Wages,Use demand and supply analysis to explain how compensating differentials,discrimination,and labor unions cause wages to differ.,16.4 LEARNING OBJECTIVE,22 of 34,Explaining Differences in Wages,Discrimination,IS IT DISCRIMINATION,OR OTHER FACTORS?Differences in education.Differences in experience.Differing preferences for jobs.,23 of 34,Explaining Differences in Wages,Discrimination,24 of 34,Table 16-3,“Mens Jobs”Often Pay More Than“Womens Jobs”,Explaining Differences in Wages,Discrimination,Use demand and supply analysis to explain how compensating differentials,discrimination,and labor unions cause wages to differ.,16.4 LEARNING OBJECTIVE,25 of 34,Is“Comparable Worth”Legislation the Answer to Closing the Gap between Mens and Womens Pay?,16-2,26 of 34,Explaining Differences in Wages,Discrimination,DOES IT PAY TO DISCRIMINATE?,16-8,27 of 34,Explaining Differences in Wages,Discrimination,DOES IT PAY TO DISCRIMINATE?Why will competition not eliminate all economic discrimination?Worker discrimination.Customer discrimination.Negative feedback loops.,28 of 34,Explaining Differences in Wages,Labor Unions,Labor union An organization of employees that has the legal right to bargain with employers about wages and working conditions.,16-9,16 4,29 of 34,Personnel Economics,Personnel economics The application of economic analysis to human resources issues.,16-10,Should Workers Pay Depend on How Much They Work or on How Much They Produce?,30 of 34,Raising Pay,Productivity,and Profits at Safelite AutoGlass,16-4,A piece-rate system at Safelite AutoGlass led to increased worker wages and firm profits.,31 of 34,Personnel Economics,Firms may choose a salary system for several good reasons:Difficulty in measuring output.Concerns about quality.Worker dislike of risk.,Other Considerations in Setting Compensation Schemes,32 of 34,The Markets for Capital and Natural Resources,16-11,The Market for Capital,33 of 34,The Markets for Capital and Natural Resources,The Market for Natural Resources,Economic rent(or pure rent)The price of a factor of production that is in fixed supply.,34 of 34,The Markets for Capital and Natural Resources,Monopsony,Monopsony The sole buyer of a factor of production.,The Marginal Productivity Theory of Income Distribution,Marginal productivity theory of income distribution The theory that the distribution of income is determined by the marginal productivity of the factors of production that individuals own.,35 of 34,Terps Coaches Have Big Incentives,36 of 34,Basketball Coaches Salaries:A March to Madness?,AN INSIDE LOOK,The market for NCAA Division 1-A college basketball coaches.,37 of 34,Compensating differentialsDerived demandEconomic discriminationEconomic rent or pure rentFactors of productionHuman capital,Labor unions Marginal product of laborMarginal productivity theory of income distributionMarginal revenue product of laborMonopsonyPersonnel economics,