Chapter 9 - The Labor Market and Wage Rates

					 Fig. 1 Product Markets and Factor
              Markets
                   Product Markets
Demand for Goods            S        Supply of Goods
  and Services              D
                                      and Services




   Households                          Firms



                            S
   Supply of                D         Demand for
   Resources                          Resources
                   Factor Markets
Fig. 2 A Competitive Labor Market

   Hourly
   Wage
                            LS




     $12
                            LD




                 10,000   Number of
                           Workers
         Fig. 3 Disappearing Wage
                 Differentials
                 (a)                           (b)
Hourly                            Hourly
Wage                   LS
                        2         Wage                S
                                                     L1
                             S
                            L1                             LS
                                                            2
                                                 B
                                   $30
            A'
  $25                                25               B'
   20                   A
                                                                LD
                             LD



          Number of Elementary             Number of Computer
              School Teachers                Systems Analysts
Fig. 4 The Market for Physicians
              Physicians'
               Salaries               LS
                                       2
2. AMA restrictions                              S
                                                L1
   on the supply of
   physicians move               C                   3. Other policies to
   the market here.   W3                                increase demand
                      W2                                for physicians
                             B   A                      move the market
                      W1                        LD
                                                 2
                                                        here, at final
                                            D           wage rate W3.
                                           L1

1. Without AMA activities
   to increase salaries,
   equilibrium is here, at
   wage rate W1.                     Number of Physicians
 Fig. 5a Union Wage Differentials
                                      (a)
     Wage
                          2. A union wage of for long-haul truckers of
                             W2 creates an excess supply of workers.


                                                           LS
                                            A'
       W2
       W1
                                                 A
1. With no labor union, both long-                          LD
   and short-haul truckers earn the
   same wage rate, W1.

                                      250,000    350,000
                                           300,000
                                      Number of Long-haul Truckers
Fig. 5b Union Wage Differentials
                         (b)
 Wage    3. Unemployed long-haul truckers move to the
            nonunion short-haul market, and the labor
            supply curve shifts rightward . . .
                                  S
                                 L1
                                      LS
                                       2

                B
  W1                B'
  W3
                               4. pushing the short-haul wage
                          LD      rate down to W3.

             200,000                       Number of Short-
               225,000                       haul Truckers
  Fig. 6 Employer Discrimination and
             Wage Rates
           Sector A                               Sector B
       (Discriminating)                      (Nondiscriminating)
Wage                                  Wage

                       LS
                        2                                    S
                             S
                                                            L1
              E'            L1                                   LS
 W3                                                               2
                                                  F
 W1                                    W1
                   E
                                       W2             F'

                                 LD
                                                           LD


          Number of Workers                      Number of Workers
        Fig. 7 The Vicious Cycle of
               Discrimination
 Current Job
                                 Lower Wage
Discrimination




                  Lower Human
 Pre-market
                     Capital              Unemployment
Discrimination     Investment




                                               Less Job
                 Lower Skill Level            Experience
   Fig. 8a/b The Minimum Wage
                    (a)                                  (b)
           Unskilled Labor                       Unskilled Labor Not
           Covered by Law                         Covered by Law

Hourly                         Hourly
 Wage  A minimum wage raises Wage
                                                                          S
       pay, but decreases jobs                                           L1
       in the covered sector.                                                  LS
                                                                                2


                                    LS                                        Some who can't
           A'                                                                 find work go to
$5.15                                                    B
 4.00                                    $4.00                 B'             the uncovered
                A              LD         3.00                      LD        sector, lowering
                                                                              wages there.
           N2   N1        N3
          Number of Workers                      Number of Workers
Fig. 8c The Minimum Wage
                      (c)
                Skilled Labor
  Hourly
   Wage                                LS

 $24.00                          C'
  20.00
                        C

                                                LD
                                                 2


           As capital is substituted for        D
                                               L1
           unskilled labor, demand for
           skilled workers goes up,
           raising the skilled wage rate.


                                      Number of Workers

				
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