demand for labor explain trends in real wages and employment since 1960.. Define and calculate the unemployment rate and5[r]
(1)(2)Learning Objectives
1 Discuss the four important trends that have
characterized labor markets in industrialized countries
2 Apply a supply and demand model to understand
the labor market
3 Explain how changes in the supply of and the
demand for labor explain trends in real wages and employment since 1960
4 Define and calculate the unemployment rate and
the participation rate
5 Differentiate among the three types of
(3)Trend 1: Increasing Real Wages
• Common in industrialized countries in the 20th
(4)Trend 2: Slower Wage Growth Since 1973
• The annual rate of real wage growth is uneven
• Data on real wage growth in the United States:
(5)Year U.S.A Japan Canada S Korea
1990 75.3 86.0 77.6 36.9
1995 86.2 95.0 90.9 70.2
2000 86.5 96.4 88.9 65.1
2005 100.0 100.0 100.0 100.0
2010 112.4 97.1 106.4 124.1
2011 114.4 99.2 109.8 126.2
Rate of Increase
(1990-2011) 1.52 1.15 1.4 3.42
Hourly Wage Index in Manufacturing, 1990–2011
(6)Trend 3: Increased Wage Inequality in US and many industrialized countries
• Between 1960 and 2010
– Average real weekly earnings of production workers
decreased
• Real wages of the least-skilled, least-educated
workers decreased 25 to 30%
– Best-educated, highest-skilled workers' real wages
increased
• Income with an advanced university degree is
– Three times the income of a high school graduate – Four times the income of a worker who did not
(7)Trend 4: Increasing Employment in US and Asian Economies
• In 2007, 146 million people in the US had jobs
– 46 million new jobs since 1980
• In 1970, 57% of the over-16 population had jobs
– In 2007, 63% worked
• Between 1980 and 2007 employment increased
46%
(8)The Labor Market
• Supply and demand analysis can be used to find
the price of labor (real wages) and the quantity (employment)
– Analysis will consider the number of workers
employed, not work-hours per year
• Labor market is an input market
– Firms hire labor to produce goods and services
• Macroeconomics look at aggregate levels of
employment and real wages
– Microeconomics looks at wage determination for a
(9)Wages and Demand for Labor
• The demand for labor depends upon:
– The productivity of workers
• Greater productivity increases employment
– The price of the worker’s output
• A higher real price increases employment
• Diminishing returns to labor
– Assumes non-labor inputs are held constant
– Adding one worker increases output but by less
than the previous worker added
• Value of Marginal Product (VMP) is extra
(10)Banana Computers (BCC) Number of Workers Computers per Year 25 48 69 88 105 120 133 144
• BCC can sell all its computers for $3,000 each