Mercado de Trabalho: Demanda e Oferta de Trabalho

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Motivation: Mapping logistic jobs in the US
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Motivation: Grab bike labor market
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Chapter 7: Labour Market
June 29, 2020
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Content
1 Labor demand (Additional reference: Robert Pindyck and Daniel
Rubinfeld: Microeconomics, 8th edition)
1 Definition
2 Law of labor demand
3 Marginal revenue product of labor
4 Optimal labor hiring decisions of firms
2 Labor supply (Additional reference: Robert Pindyck and Daniel
Rubinfeld: Microeconomics, 8th edition)
1 Definition
2 Factors affecting the labor supply
3 Backward - bending supply of labor
3 Equilibrium in competitive labor market
4 Equilibrium in labor market with monopsony and monopoly power
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Labor demand
Labor demand is a derived demand
Most labor services are inputs into the production of other goods.
To understand labor demand, we need to focus on the firms that hire
the labor and use it to produce goods for sale.
By examining the link between the production of goods and the
demand for labor to make those goods, we gain insight into the
determination of equilibrium wages.
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Labor demand
Ford to cut 1400 jobs as sales level off, stock price lags (May, 2017)
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Two assumptions about our firm
Firm is competitive both in the market for apples (firm is a seller) and
in the market for apple pickers (firm is a buyer)
A competitive firm is a price taker (P=MR).
The firm is profit maximizing
The firm does not directly care about the number of workers it has or the
number of apples it produces.
The firm cares only about: πismaximizedwhenP = MC
The firm’s supply of apples and its demand for workers are derived from its
goal of maximizing profit.
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Derived labor demand
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Recall
Marginal product of labor (MPL)
the increase in the amount of output from an additional unit of labor
diminishing.
Diminishing marginal product
the property whereby the marginal product of an input declines as the
quantity of the input increases.
New definition: Marginal revenue product of labor MRPL
the additional output obtained from the additional unit of this labor,
multiplied by the additional revenue from an extra unit of output.
In competitive output market: P = MR
MRPL = MRxMPL = PxMPL
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How Much Labor to Hire?
Profit maximizing firm in competitive market
P = MC (Pisthepriceofoutput)
Rearrange TC’(Q)
MC =TC’(Q)=
w∆L
∆Q
=
w
MPL
Then, P =
w
MPL
w = P.MPL = MRPL
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How Much Labor to Hire?
Profit maximizing firm hires workers if MRPL = W
The firm makes that decision by choosing the quantity of labor at which
the value of the marginal product equals the wage.
As a result, the value-of-marginal-product curve is the labor-demand
curve for a competitive, profit-maximizing firm.
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How Much Labor to Hire? MRPL = W
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What Causes the Labor-Demand Curve to Shift?
Because the labor market is perfectly competitive, the firm can hire as
many workers as it wants at the market wage w* and is not able to affect
the market wage.
The supply of labor curve facing the firm SL is thus a horizontal
line. The profit-maximizing amount of labor that the firm hires, L*, is at
the intersection of the supply and demand curves.
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What Causes the Labor-Demand Curve to Shift?
MRPL = MPLxP
1 Output price (P):
When the output price changes, the value of the MRPL changes, and
the labor-demand curve shifts.
2 Technology change: Technological advance typically raises the MPL,
which in turn increases the demand for labor and shifts the
labor-demand (MRPL) curve to the right. It is also possible for
technological change to reduce labor demand. The invention of a
cheap industrial robot, for instance, could shift the labor-demand
curve to the left.
3 Supply of other factors: The quantity available of one factor of
production (K) can affect the MPL. A fall in the supply of ladders,
will reduce the MPL of apple pickers and the demand for apple
pickers.
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Supply of Labor
Trade-off between Work and Leisure (24 hours per day)
The trade-off between labor and leisure lies behind the labor-supply curve.
The labor-supply curve reflects how workers’ decisions about the
labor-leisure trade-off respond to a change in that opportunity cost. An
upward-sloping labor supply curve means that an increase in the wage
induces workers to increase the quantity of labor they supply.
Because time is limited, more hours of work mean that workers are
enjoying less leisure. That is, workers respond to the increase in the
opportunity cost of leisure by taking less of it.
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Backward- bending supply of labor
A higher wage rate can lead to less labor being supplied
When the wage rate increases, the hours of work supplied increase initially
but can eventually decrease as individuals choose to enjoy more
leisure and to work less.
The backward- bending portion of the labor supply curve arises when the
income effect of the higher wage (which encourages more leisure) is
greater than the substitution effect (which encourages more work).
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Backward- bending supply of labor
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Backward- bending supply of labor
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Backward- bending supply of labor
When the wage rate increases from $10 to $30 per hour, the worker’s
budget line shifts from PQ to RQ. In response, the worker moves from A
to B while decreasing work hours from 8 to 5. The reduction in hours
worked arises because the income effect outweighs the substitution effect.
In this case, the supply of labor curve is backward bending.
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What Causes the Labor-Supply Curve to Shift?
1 Changes in Tastes A generation or two ago, it was the norm for
women to stay at home and raise children. Today, more mothers
choose to work. The result is an increase in the supply of labor.
2 Changes in Alternative Opportunities If the wage earned by pear
pickers suddenly rises, some apple pickers may choose to switch
occupations, and the supply of labor in the market for apple pickers
falls.
3 Immigration (Globalization) Movement of workers from region to
region, or country to country, is another important source of shifts in
labor supply. When immigrants come to the United States, the supply
of labor in the US increases, and the supply of labor in the
immigrants’ home countries falls. In fact, much of the policy debate
about immigration centers on its effect on labor supply and, thereby,
equilibrium wages in the labor market.
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Equilibrium in a competitive labor market
Labor market is a competitive market with 2 cases:
1 Output market is a competitive market (Poutput = MRoutput )
2 Output market is a monopolistic market ( Poutput > MRoutput )
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Equilibrium in a competitive labour market (2 cases)
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Equilibrium in a competitive labour market (2 cases)
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Equilibrium in a competitive labor market (2 cases)
In a competitive labor market in which the output market is
competitive, the equilibrium wage wc is given by the intersection of the
demand for labor (marginal revenue product) curve and the supply of labor
curve.
→ point A in part (a) of the figure.
Part (b) shows that when the producer has monopoly power, the marginal
value of a worker vM = P ∗MPL > the wage wM . Thus too few
workers are employed.
→ Point B determines the quantity of laborthat the firm hires and the
wage rate paid.
→ In part (b) Less workers are hired but the wage is higher than
part (a)
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Equilibrium in labor market with monopoly power
Recall: Minimum wage, Monopoly and Efficiency
Setting a minimum wage in a perfectly competitive market can create
unemployment (surplus) and a deadweight loss (inefficiency).
Seller (supplier) of a product has some monopoly power if it can profitably
charge a price greater than marginal cost ( P > MC ).
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Equilibrium in labor market with monopoly power (a sole
labor supplier)
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Equilibrium in labor market with monopoly power (a sole
labor supplier)
When a labor union is a monopolist (a sole labor supplier), it chooses
among points on the buyer’s demand for labor curve DL.
The seller can maximize the number of workers hired, at L*, by agreeing
that workers will work at wage w*.
The quantity of labor L1 that maximizes the rent earned by
employees is determined by the intersection of the marginal revenue and
supply of labor curves; union members will receive a wage rate of w1.
If the union maximizes total wages paid to workers (TR’=MR=0), it
should allow L2 union members to be employed at a wage rate of w2. At
that point, the marginal revenue to the union will be zero.
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Labor market with Monopsony Power
Marginal expenditure (is marginal cost)
is the cost of one more unit.
Average expenditure
is the average price paid per unit.
How many goods to buy?
Keep increasing the number of units purchased until the additional value
from the last unit purchased (the marginal value)= additional cost of that
unit (the marginal expenditure).
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Labor market with Monopsony Power
Perfect competition (Recall in chapter 6)
The unit price paying for the good = the average expenditure = the
marginal expenditure
Monopsony power
The marginal expenditure > the average expenditure
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Monopsony power in labor market (only one employer
(buyer) in the market)
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Monopsony power in labor market (sole employer (buyer)
in the market)
When the employer has monopsony power, the marginal expenditure curve
lies above the average expenditure curve because the decision to buy an
extra unit raises the price that must be paid for all units, not just for the
last one.
The number of units of input purchased is given by L*, at the intersection
of the marginal revenue product and marginal expenditure curves.
The corresponding wage rate w* is lower than the competitive wage wc .
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Monopsony power in labor market (sole employer (buyer)
in the market)
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