slide 1copyright © 2004 mcgraw-hill ryerson limited chapter 14 labour
TRANSCRIPT
Slide 1 Copyright © 2004 McGraw-Hill Ryerson Limited
Chapter 14
Labour
Slide 2 Copyright © 2004 McGraw-Hill Ryerson Limited
FIGURE 14-1
The Competitive Firm’s Short-Run Demand for Labour
When the wage rate is $12/labour-day and the output price is $2/unit (panel b), the perfectly competitive firm will hire 80 labour-days per day, the amount for which VMPL and the wage rate are the same.
Slide 3 Copyright © 2004 McGraw-Hill Ryerson Limited
FIGURE 14-2
Short- and Long-Run Demand Curves for Labour
The demand for labour is more elastic in the long run because the firm has the opportunity to substitute labour for capital. In the short run, its only avenue of response is to increase output.
Slide 4 Copyright © 2004 McGraw-Hill Ryerson Limited
FIGURE 14-3
The Market Demand Curve for Labour
When the wage rate falls from w1 to w2, each firm hires more labour and produces more output. The increase in output causes output price to fall, which reduces the value of labour’s marginal product. The market demand curve for labour is thus more steep than the horizontal summation of the individual demand curves.
Slide 5 Copyright © 2004 McGraw-Hill Ryerson Limited
FIGURE 14-4
The Optimal Choice of Leisure and Income
The optimal amount of leisure is h* = 15 hours per day, which corresponds to a point of tangency between the budget constraint (B) and the indif-ference curve I2. The corresponding amount of paid labour is 24 – h* = 9 hours per day, which yields a daily wage income of w0 (24 – h*) = $90 per day.
Slide 6 Copyright © 2004 McGraw-Hill Ryerson Limited
FIGURE 14-5
Optimal Leisure Choices for Different Wage Rates
When the hourly wage rises from $4 to $10, the optimal amount of leisure falls from 18 to 15 hr per day. But when the wage rises still further to $14, the optimal amount of leisure rises to 17 hr per day.
Slide 7 Copyright © 2004 McGraw-Hill Ryerson Limited
FIGURE 14-6
The Labour Supply Curve for the /th Worker
For this worker, an increase in the wage rate elicits greater labour supply when the wage rate is less than $10 per hour, but smaller labour supply when the wage rate is above $10 per hour.
Slide 8 Copyright © 2004 McGraw-Hill Ryerson Limited
FIGURE 14-7
The Labour Supply Curve for a Worker Seeking a Target Level of Income
The higher his hourly wage rate, the fewer hours Smith has to work to earn his daily target of $200.
Slide 9 Copyright © 2004 McGraw-Hill Ryerson Limited
FIGURE 14-8
When Leisure and Income Are Perfect Complements
If income and leisure are perfect comple-ments in a 10-1 ratio, an individual will consume leisure at a point on the budget constraint that satisfies M = 10h.
Slide 10 Copyright © 2004 McGraw-Hill Ryerson Limited
FIGURE 14-9
An Increase in Demand by One Category of Employer
The demand for economists to teach in business schools rises (centre panel), causing the total market demand curve for economists to rise (right panel). Employment at the new higher wage is determined by consulting the respective demand curves of the liberal arts sector (left panel) and business school sector (centre panel).
Slide 11 Copyright © 2004 McGraw-Hill Ryerson Limited
FIGURE 14-10
Average and Marginal Factor Cost
When the supply curve (S) facing a monopsonist is upward sloping, the cost of hiring an additional unit of labour (MFC) is no longer merely the wage he must be paid. To that wage must be added the additional payment that must be made to existing workers (shaded rectangle).
Slide 12 Copyright © 2004 McGraw-Hill Ryerson Limited
FIGURE 14-11
The Profit-Maximizing Wage and Employment Levels for a Monopsonist
At L*, the cost of ex-panding or contracting employment is exactly equal to the benefit. Both exceed the profit-maximizing wage of w*.
Slide 13 Copyright © 2004 McGraw-Hill Ryerson Limited
FIGURE 14-12
Comparing Monopsony and Competition in the Labour Market
Because the monop-sonist takes into account the effect of employment expansions on wages paid to existing workers, it will employ less and pay less than the corresponding values under competition.
Slide 14 Copyright © 2004 McGraw-Hill Ryerson Limited
FIGURE 14-13
A Statutory Minimum Wage
The effect of the minimum wage is to reduce employment of unskilled labour from L0 to Dm, while increasing supply from L0 to Sm. The resulting difference, Sm – Dm, is the unemployment attributable to the minimum wage.
Slide 15 Copyright © 2004 McGraw-Hill Ryerson Limited
FIGURE 14-14
The Minimum Wage Law in the Case of Monopsony
The effect of a minimum wage at wm is to make the monoposonist’s MFC curve horizontal in the region from 0 to L1, which increases employment from L* to Lm.
Slide 16 Copyright © 2004 McGraw-Hill Ryerson Limited
FIGURE 14-15
The Allocative Effects of Collective Bargaining
Without collective bargaining, the same wage, w0, prevails in each sector. With the union wage pegged at wU, employment falls in the union sector. The displaced workers seek employment in the nonunion sector, driving wages down there. The result is a reduction in national output.
Slide 17 Copyright © 2004 McGraw-Hill Ryerson Limited
FIGURE 14-16
A Hypothetical Uniform Productivity Distribution
The productivity values for members of this group are uniformly distributed between $10/hr and $30/hr. This means that the VMP of a person chosen at random from the group is equally likely to be any number from $10/hr to $30/hr. The average VMP for members of this group is $20/hr.
Slide 18 Copyright © 2004 McGraw-Hill Ryerson Limited
FIGURE 14-17
Productivity Distributions for Two Groups
The VMP values of members of group A are uniformly distributed between $10/hr and $30/hr, while those of members of group B are uniformly distributed between $20/hr and $40/hr. If we know only the groups to which people belong, our best estimates of an individual’s VMP would be the average VMP for his or her group—$20/hr for group A, $30/hr for group B.
Slide 19 Copyright © 2004 McGraw-Hill Ryerson Limited
PROBLEM 1 L (labour/hours) MPL (units per labour-hour) VMP
L ($ per labour-hour
0 4
10 3
20 2
30 1
40 0
Slide 20 Copyright © 2004 McGraw-Hill Ryerson Limited
PROBLEM 2 h (leisure-hrs per day) M ($ per day) M ($ per day)
0
6
12
18
24
Slide 21 Copyright © 2004 McGraw-Hill Ryerson Limited
PROBLEM 3 L(labour/hours)
AFC($ per labour-hour)
TFC($)
MFC($ per labour-hour)
VMPL
($ per labour-hour
0 0 0 0 16
10 2 20 4 12
20 4 80 8 8
30 6 180 12 4
Slide 22 Copyright © 2004 McGraw-Hill Ryerson Limited
PROBLEM 12 Total willingness to pay ($)
Total vacation time,weeks
Youngerworkers
Olderworkers
1 300 500
2 475 800
3 600 1050
4 700 1250
5 750 1400
Slide 23 Copyright © 2004 McGraw-Hill Ryerson Limited
ANSWER 14-1
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ANSWER 14-2
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ANSWER 14-3
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ANSWER 14-4
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ANSWER 14-5
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ANSWER 14-6
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ANSWER 14-7
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ANSWER 14-8