introduction to labor economics graphs and tables handout #2
DESCRIPTION
Introduction to Labor Economics Graphs and Tables Handout #2. Table B-1.1: Marginal Revenue Product of Labor. Figure B-1.1: Marginal Revenue Product of Labor. MRP L. $1,000. $300. MRP L. L. 1 8. Table B-1.2: Minimum Wage Legislation, 1938-2009. - PowerPoint PPT PresentationTRANSCRIPT
Introduction to Labor Economics
Graphs and TablesHandout #2
Table B-1.1: Marginal Revenue Product of Labor
L Q MPL
P = $10 MRPL
1 100 100 $1,000
2 190 90 $900
3 270 80 $800
4 340 70 $700
5 400 60 $600
6 450 50 $500
7 490 40 $400
8 520 30 $300
Figure B-1.1: Marginal Revenue Product of Labor
MRPL
L
MRPL
1 8
$1,000
$300
Table B-1.2: Minimum Wage Legislation, 1938-2009
Date Wage Coverage Date Wage Coverage
10/24/38 $0.25 43.4% 02/01/67 $1.40 75.3%
10/24/39 $0.30 47.1% 02/01/68 $1.60 72.6%
10/24/45 $0.40 55.4% 02/01/69 $1.60 78.2%
01/25/50 $0.75 53.4% 02/10/70 $1.60 78.5%
03/01/56 $1.00 53.1% 02/01/71 $1.60 78.4%
09/03/61 $1.15 62.1% 05/01/74 $2.00 83.7%
09/03/63 $1.25 62.1% 01/01/75 $2.10 83.3%
09/03/64 $1.25 62.6% 01/01/76 $2.30
Table B-1.2: Minimum Wage Legislation, 1938-2009
Date Wage Coverage Date Wage Coverage
01/01/78 $2.65 83.3% 07/24/07 $5.85
01/01/79 $2.90 07/24/08 $6.55
01/01/80 $3.10 07/24/09 $7.25
01/01/81 $3.35
04/10/90 $3.80 88.6%
04/01/91 $4.25
10/01/96 $4.75 89.5%
09/01/97 $5.15
• Source: Ehrenberg and Smith, Modern Labor Economics, 7th Edition, p. 122
• US DOL, “History of Changes to the Minimum Wage Law”
Figure B-1.2:Conventional Approach to Minimum Wage for a Two Sector Model
Covered Low Skill Market Uncovered Low Skill Market
D
S0S1
W0
W2
S2
S0
L0 L2 L3
D
Lmin L0 LS
W0
Wmin
L L
W W
WL
Figure B-1.3: Minimum Wage Market with Employer Reductions in Fringes
Covered Low Skill Market
D0
S0
S1
Lmin L1L0
W0
Wmin
L
W
D1
W1
a
c
b
Figure B-2.1: Elasticity and the Demand Curve
w
L
$60
180 360
$30
eDL > 1
eDL = 1
eDL < 1
Figure B-2.2: Relatively Elastic Demand Curve
L
W
D
$10
$12
1000 1500
Figure B-2.3: Relatively Inelastic Demand Curve
L
W D
$25
$50
900 1000
Figure B-2.4: Unit Elastic Point on Demand Curve
W
L
$60
150 300
$30
eDL = 1
Figure B-2.5: Substitutability of Other Factors of Production
W
LL
W
L
D0
D1
(a) Easy to find substitutes (b) Difficult to find substitutes
400 600
$20$22
$10
$5
800 900
Figure B-2.6: Labor Cost as a Proportion of Total Cost
W
L L
W
(a) Labor Intensive Industry (b) Capital Intensive Industry
D0
D1
80 160 80 90
$10$12
$10$12
Figure C-2.1: Age-Earnings Profiles for High School Grads and College Grads
18 22 65Age
Earnings
(1)
(2)
(3)
YHS
YC
DirectCosts
Opportunity Costs
Net Benefits toCollege Attendance
Table C-2.1: Numerical Example
Occupation Occupation r = 15% r = 25%
Year YC YHS YC - YHS YC - YHS
1 $0 $10,000 -$8,695 -$8,000
2 $0 $10,000 -$7,561 -$6,400
3 $20,000 $10,000 $6,575 $5,120
4 $20,000 $10,000 $5,717 $4,096
5 $20,000 $10,000 $4,971 $3,277
6 $20,000 $10,000 $4,323 $2,621
Table C-2.2: Direct Costs
r = 15% r = 25%
Year C C C
1 $1,000 $869 $800
2 $1,000 $756 $640
Figure C-2.2a: Supply and Demand for Higher Education
PHE
QHE
S
D0
DSUB
$5K
10m 14m
$9K
$3KWL
• Explanation of Figure C-2.2a– (1) Subsidy lowers cost to students who now
have to pay $3K and get subsidies of $6K. Result: More students go to college.
– (2) Subsidy increases the overall cost of getting a higher education from $5K to $9K. Subsidy gets capitalized into value of inputs so the cost of education rises.
Figure C-2.2b: Supply and Demand for College Grads
D0
S0
SSUB
$30K
20m 22m
$26K WL
W
L
College Grad Labor Market
Figure C-2.3: Supply and Demand for College and High School Grads
HS Grads College GradsL
W
L
W
D
S
S
D
$12K
50m
$18K
30m
• Explanation of Figure C2-3– (1) Equilibrium differential between markets
and the cost of acquiring a college education.– (2) Where PV = C. Where is PV < C and PV >
C?
Figure C-2.4: Productivity in a Screening
Model
MP
Education
1
2
E*
Figure C-2.5: Costs in a Screening Model
$
Education
CB
CA
CA = High psychic cost of acquiring educationCB = Low psychic cost of acquiring education.
Figure C-2.6: The Signaling Model
E*Education
MP, $
1
2
CA
CB
g
h
0
• Explanation of Figure C-2.6– (1) Max Net Benefits for Group A
• Case #1: Acquiring Signal E*• Benefits = 2, Costs = E*h, Net Benefits <1• Case #2: Not Acquiring Signal E*• Net Benefits = 1, so don’t acquire signal E*
– (2) Max Net Benefits for Group B• Case #1: Acquiring Signal E*• Benefits = 2, Costs = E*g >1, Net Benefits >1• Case #2: Not Acquiring Signal E*• Net Benefits = 1, so acquire signal E*
Figure C-2.7: Signaling Failure
E0 E*Education
MP, $
1
2
CA
CB
g’
h’
0
• Explanation of Figure C-2.7– (1) Signal is set too low so that everyone from
both groups has an incentive to acquire signal E0. Why might this occur? (In-Class exercise)
Figure C-2.8: External Benefits of Higher Education
QHE
P
S
DPVT
DSOC
10m 14m
$5K
$3K
$9K
External Benefits = $6K so if only private individual preferences are considered there will be under-provision of higher education.
Figure C-2.9: Imperfect Capital Markets for Financing Higher Education
r
LoanableFunds
D
S0
SGOVT LOAN
$10m
5%
10%
Figure C-2.10: Effect of Minimum Wage on Lifetime Earnings
Earnings
AgeR
Earnings withMinimum Wage
Earnings withoutMinimum Wage
Gains
Losses