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Lecture Notes: Nov. 20 |
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Econ. 103, Fall 2002, Prof. Nancy Folbre |
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Chapter 13. Labor Markets Why do people earn what they do?
First, let’s review how the forces of supply and demand in the labor market create an equilibrium wage, taking the market for college graduates as an example. Now, let’s experiment with some possible factors that could shift the supply and demand for labor in ways that might affect wages-- a recession tends to shift the demand for labor to the left immigration tends to shift the supply of labor to the right capital mobility (specifically, relocation of plants overseas) tends to shift the supply of labor to the right The minimum wage sets a floor under wages. The current federal minimum is $5.15 an hour; in real purchasing power, it is lower than it was in 1955. Living wage campaigns are local efforts to increase minimum wages. Do minimum wages and living wages cause unemployment? If so, do they create so much unemployment that this cancels out the benefits they provide? Probably they CAN have negative effects IF they are set VERY high. The market determines the wage an individual employer must pay. An employer continues hiring workers as long as the value of their marginal product is higher than the wage. Monopsony–a market with only a single buyer. Example of monopsony in the labor market–a "company town" |