Labor (chp 13)

Demand for labor is the amount of labor firms want to hire at various wage rates (employer’s point of view). A wage rate is the amount an employer is willing to pay for a unit of labor. Derived demand is the demand consumers have placed on a firm. A company will use derive demand to determine how many products to produce and how much labor is needed to produce the products.

$15 per hr A1

A B1

$10

$5 B

300 hr 500hr 60

Demand Curve for Labor

Looking at the above curve, an employer will demand greater quantity of labor at a lower wage. Thus at $5.00 per hour the employer will offer 500 hrs of labor. At $10 per hour the employer will offer 325 hours of employment. If the demand for labor increases because there is a greater demand for output, the employer can offer $15 for 300 hrs and $10 for 500 hrs.

There are two factors that will cause a change in demand for labor – (1) demand for output (greater or lesser demand for products will change demand for labor) and (2) the productivity of labor (efficiency).

Supply of labor is the amount of labor that would be available at various wage rates (worker’s point of view). The more wages the employer offers the greater the number of hours workers are willing to labor.

$15 per hr

B B1

$10

$5 A A1

300 hr 500hr 60

Supply Curve for Labor

Looking at the above curve, a worker will supply a greater quantity of labor at a higher wage. Thus at $5.00 per hour the worker will offer 150 hrs of labor. At $12 per hour, the worker will offer 475 hours of employment. If the demand for supply increases because there is a greater supply of labor, the worker will labor for $5 for 475 hrs and for $12 for 550 hrs. Thus the greater the supply of labor will lower the wage. Conversely, the lesser the supply of labor, the higher the wage.

Certain factors will increase the supply of labor: enjoyment of work, better and safer working conditions, and opportunity for advancement. Certain factors will decrease the supply of labor: poor working conditions, labor restrictions, long training, and discrimination.

Equilibrium wage is the wage at which the quantity of labor demanded equals the quantity of labor supplied.

Women in the workplace –

1960 – 37.7% of work force were women

1980 – 51%

1990 – 58 %

Today – women make only $0.76 for every dollar a man makes in the SAME job. (1963 President Kennedy signed the Equal Pay Act prohibiting paying women less.)

Non-competitive forces in labor market:

Minimum Wage Laws – the lowest wage that can be paid set by law. According to critics, minimum wages laws decrease the number of hours employers are willing to offer. The minimum wage creates a surplus of labor.

Monopsony – a market in which there is only one buyer – A labor monopsony occurs if an employer dominates or is the chief employer of an area. The employer has no real competition for labor, thus driving down wages.

Labor Unions – an organization of workers formed to give workers greater bargaining power in their dealings with management. One of the main functions of a union is collective bargaining, which is the process of having a union negotiate the terms of employment for all workers in an organization. An injunction stops people from certain actions. Thus if an employer was treating its workers unfairly like prohibiting them from meeting, the court could issue and injunction on the employer. An example of an injunction was when the courts stopped yellow dog contracts which prohibited workers from joining a union in order to be hired. A closed shop is illegal; it required employers to hire only union members. A union shop, however, is legal. Union shops require union membership after being hired. Agency Fee is the requirement placed on non-union members to pay their “fair share” since the union negotiated for non-members as well as union members.