Labor Economics

1. Microeconomics
Labor Economics

5. Human Labor

6. Human Labor
Supply and Demand
You are the Supply
You are “renting” yourself

7. Wage Labor Market
Rate
Q

8. Wage Labor Market
Rate
Demand
Q

9. Wage Labor Market
Rate
Supply
Demand
Q

10. Wage Labor Market
Rate
Supply
Demand
Q

11. Wage Labor Market
Rate
Supply
Demand
Q

12. Wage Labor Market
Rate
Supply
Demand
Q1 Q

13. Wage Labor Market
Rate
Supply
P1
Demand
Q1 Q

14. Wages and Profits

15. Wages and Profits
Profits attract attention
Attention turns into Competition
Competition raises wages

16. Risks

17. Risks
If you are paid too little, the
competition will hire you away
If you are paid too much, your
company goes out of business

18. Marginal Product of Labor
MP

19. Marginal Product of Labor
MP
Additional output a firm
gets by employing one
more unit of labor.

20. Value of the
Marginal Product of Labor
VMP

21. Value of the
Marginal Product of Labor
VMP
The value of the additional
output a firm gets by employing
one more unit of labor.

22. Value of the
Marginal Product of Labor
VMP

23. Value of the
Marginal Product of Labor
VMP
It’s not output,
It’s value counts

24. Derived Demand

25. Derived Demand
Demand for another
product determines the
demand

26. Drill
or
Holes?

28. Pizzas Total Pizzas
20
16
12
8
4
0
0 1 2 3 4 5
Employees

29. Pizzas Marginal Productivity
10
8
6
4
2
0
1st 2nd 3rd 4th 5th
Employee

32. How Value of
many Marginal Wage
employees? Marginal Product Cost
Total Product VMP $30 Value
Employee Pizzas MP (MR) (MC) Add
Profit 0 0 0 $0
before
wages 1st 5 5 $50 $15 $35
$10 2nd 11 6 $60 $15 $45
Cost to 3rd 15 4 $40 $15 $25
Hire new
employee 4th 17 2 $20 $15 $5
$15 5th 18 1 $10 $15 -$5

33. How Value of
many Marginal Wage
employees? Marginal Product Cost
Total Product VMP $30 Value
Employee Pizzas MP (MR) (MC) Add
Profit 0 0 0 $0
before
wages 1st 5 5 $50 $15 $35
$10 2nd 11 6 $60 $15 $45
Cost to 3rd 15 4 $40 $15 $25
Hire new
employee 4th 17 2 $20 $15 $5
$15 5th 18 1 $10 $15 -$5

34. How Value of
many Marginal Wage
employees? Marginal Product Cost
Total Product VMP $30 Value
Employee Pizzas MP (MR) (MC) Add
Profit 0 0 0 $0
before
wages 1st 5 5 $50 $15 $35
$10 2nd 11 6 $60 $15 $45
Cost to 3rd 15 4 $40 $15 $25
Hire new
employee 4th 17 2 $20 $15 $5
$15 5th 18 1 $10 $15 -$5

35. How Value of
many Marginal Wage
employees? Marginal Product Cost
Total Product VMP $30 Value
Employee Pizzas MP (MR) (MC) Add
Profit 0 0 0 $0
before
wages 1st 5 5 $50 $15 $35
$10 2nd 11 6 $60 $15 $45
Cost to 3rd 15 4 $40 $15 $25
Hire new
employee 4th 17 2 $20 $15 $5
$15 5th 18 1 $10 $15 -$5

36. How Value of
many Marginal Wage
employees? Marginal Product Cost
Total Product VMP $30 Value
Employee Pizzas MP (MR) (MC) Add
Profit 0 0 0 $0
before
wages 1st 5 5 $50 $15 $35
$10 2nd 11 6 $60 $15 $45
Cost to 3rd 15 4 $40 $15 $25
Hire new
employee 4th 17 2 $20 $15 $5
$15 5th 18 1 $10 $15 -$5

37. How Value of
many Marginal Wage
employees? Marginal Product Cost
Total Product VMP $30 Value
Employee Pizzas MP (MR) (MC) Add
Profit 0 0 0 $0
before
wages 1st 5 5 $50 $15 $35
$10 2nd 11 6 $60 $15 $45
Cost to 3rd 15 4 $40 $15 $25
Hire new
employee 4th 17 2 $20 $15 $5
$15 5th 18 1 $10 $15 -$5

38. How Value of
many Marginal Wage
employees? Marginal Product Cost
Total Product VMP $30 Value
Employee Pizzas MP (MR) (MC) Add
Profit 0 0 0 $0
before
wages 1st 5 5 $50 $15 $35
$10 2nd 11 6 $60 $15 $45
Cost to 3rd 15 4 $40 $15 $25
Hire new
employee 4th 17 2 $20 $15 $5
$15 5th 18 1 $10 $15 -$5

39. How Value of
many Marginal Wage
employees? Marginal Product Cost
Total Product VMP $30 Value
Employee Pizzas MP (MR) (MC) Add
Profit 0 0 0 $0
before
wages 1st 5 5 $50 $15 $35
$10 2nd 11 6 $60 $15 $45
Cost to 3rd 15 4 $40 $15 $25
Hire new
employee 4th 17 2 $20 $15 $5
$15 5th 18 1 $10 $15 -$5

42. How Value of
many Marginal Wage
employees? Marginal Product Cost
Total Product VMP $30 Value
Employee Pizzas MP (MR) (MC) Add
Profit 0 0 0 $0
before
wages 1st 5 5 $35 $15 $20
$7 2nd 11 6 $42 $15 $27
Cost to 3rd 15 4 $28 $15 $13
Hire new
employee 4th 17 2 $14 $15 -$1
$15 5th 18 1 $7 $15 -$8

43. How Value of
many Marginal Wage
employees? Marginal Product Cost
Total Product VMP $30 Value
Employee Pizzas MP (MR) (MC) Add
Profit 0 0 0 $0
before
wages 1st 5 5 $35 $15 $20
$7 2nd 11 6 $42 $15 $27
Cost to 3rd 15 4 $28 $15 $13
Hire new
employee 4th 17 2 $14 $15 -$1
$15 5th 18 1 $7 $15 -$8

44. How Value of
many Marginal Wage
employees? Marginal Product Cost
Total Product VMP $30 Value
Employee Pizzas MP (MR) (MC) Add
Profit 0 0 0 $0
before
wages 1st 5 5 $35 $15 $20
$7 2nd 11 6 $42 $15 $27
Cost to 3rd 15 4 $28 $15 $13
Hire new
employee 4th 17 2 $14 $15 -$1
$15 5th 18 1 $7 $15 -$8

45. How Value of
many Marginal Wage
employees? Marginal Product Cost
Total Product VMP $30 Value
Employee Pizzas MP (MR) (MC) Add
Profit 0 0 0 $0
before
wages 1st 5 5 $35 $15 $20
$7 2nd 11 6 $42 $15 $27
Cost to 3rd 15 4 $28 $15 $13
Hire new
employee 4th 17 2 $14 $15 -$1
$15 5th 18 1 $7 $15 -$8

46. How Value of
many Marginal Wage
employees? Marginal Product Cost
Total Product VMP $30 Value
Employee Pizzas MP (MR) (MC) Add
Profit 0 0 0 $0
before
wages 1st 5 5 $35 $15 $20
$7 2nd 11 6 $42 $15 $27
Cost to 3rd 15 4 $28 $15 $13
Hire new
employee 4th 17 2 $14 $15 -$1
$15 5th 18 1 $7 $15 -$8

47. How Value of
many Marginal Wage
employees? Marginal Product Cost
Total Product VMP $30 Value
Employee Pizzas MP (MR) (MC) Add
Profit 0 0 0 $0
before
wages 1st 5 5 $35 $15 $20
$7 2nd 11 6 $42 $15 $27
Cost to 3rd 15 4 $28 $15 $13
Hire new
employee 4th 17 2 $14 $15 -$1
$15 5th 18 1 $7 $15 -$8

48. How Value of
many Marginal Wage
employees? Marginal Product Cost
Total Product VMP $30 Value
Employee Pizzas MP (MR) (MC) Add
Profit 0 0 0 $0
before
wages 1st 5 5 $35 $15 $20
$7 2nd 11 6 $42 $15 $27
Cost to 3rd 15 4 $28 $15 $13
Hire new
employee 4th 17 2 $14 $15 -$1
$15 5th 18 1 $7 $15 -$8

49. How Value of
many Marginal Wage
employees? Marginal Product Cost
Total Product VMP $30 Value
Employee Pizzas MP (MR) (MC) Add
Profit 0 0 0 $0
before
wages 1st 5 5 $35 $15 $20
$7 2nd 11 6 $42 $15 $27
Cost to 3rd 15 4 $28 $15 $13
Hire new
employee 4th 17 2 $14 $15 -$1
$15 5th 18 1 $7 $15 -$8

50. Hiring Rule

51. Hiring Rule
As long as marginal revenue
is not less than marginal
cost - Keep hiring
MR≥MC

52. Value of the Marginal
Product of Labor
VMP

53. Value of the Marginal
Product of Labor
VMP
Declines due to the law of
diminishing returns

54. If you want wages to
go up

55. If you want wages to
go up
Increase Demand
Decrease Supply

56. Wage Labor Market
Rate
Supply
R1
Demand
Q1 Q

57. Wage Labor Market
Rate
Supply
Increase
R1
Demand
Demand
Q1 Q

58. Wage Labor Market
Rate
Supply
Increase
R1
Demand
Demand
Q1 Q

59. Wage Labor Market
Rate
Supply
Increase
R1
Demand
Demand
Q1 Q

60. Wage Labor Market
Rate
Supply
R2
Increase
R1
Demand
Demand
Q1 Q

61. Wage Labor Market
Rate
Supply
R2
Increase
R1
Demand
Demand
Q1 Q2 Q

62. Wage Labor Market
Rate
Supply
R1
Demand
Q1 Q

63. Wage Labor Market
Rate
Supply
Reduce
R1 Supply
Demand
Q1 Q

64. Wage Labor Market
Rate Supply
Reduce
R1 Supply
Demand
Q1 Q

65. Wage Labor Market
Rate Supply
Reduce
R1 Supply
Demand
Q1 Q

66. Wage Labor Market
Rate Supply
R2
Reduce
R1 Supply
Demand
Q1 Q

67. Wage Labor Market
Rate Supply
R2
Reduce
R1 Supply
Demand
Q2 Q1 Q

68. Why are wages different?

69. Why are wages different?
Income is based on your
Human Capital

70. Human Capital

71. Human Capital
Education Energy
Training Work Habits
Experience Trustworthiness
Intelligence Initiative

72. If you want wages to
go up

73. If you want wages to
go up
Increase your
Human Capital

74. Why are wages different?

75. Why are wages different?
Compensating wage
differentials

76. America’s 10 Most Dangerous Jobs
Per 100,000
Average 3.3
Fishing 200
Logging 62
Pilot 57
Farm & Ranch 36
Roofers 35
Ironworkers 30
Sanitation 25
Machinist 19
Truck Driver 18
Construction 18
Source: Bureau of Labor Statistics

77. Discrimination
is
Expensive