Transcript Graphs and Tables, Part 1

Introduction to Labor
Economics
Graphs and Tables
Handout #1
Figure A-3.1: Demand Curve for Labor
W
$60
$50
$40
D
L
50
100
Figure A-3.2a: Input Market-The Scale Effect
W
W0 = $50
W1 = $40
D
L0 =50
L1 = 100
Input Market
L
Figure A-3.2b: Output Market-The Scale Effect
P
S
S’
P0
P1
D
Q0
Q1
Output Market
Q
• Explanation of Figures A-3.2a and A-3.2b
– (1) The decrease in wages is a _________in
the cost of production and causes the supply
of output to __________.
– (2) This _________in output causes the firm
to __________its demand for all inputs.
– This is the scale effect.
Summary Table 1
Two input Markets, Capital and Labor.
Look at Labor Market where wage
changes
Cause
Change in the wage
Effect
Movement along demand curve
Language Increase or decrease in the quantity
demanded of labor
Note
Scale and Substitution Effects work
together (in the same direction)
Figure A-3.3: An Increase in Demand for Labor
W
$70
$60
D1
$30
D0
150
200
L
(1) An Increase in Demand
(2) An Increase in the Quantity Demanded
At Each Wage
Figure A-3.4a: Increase in the Demand for Miners
W
D1
D0
L
Market for Miners
*Figure A-3.4b: Change in Demand for Auto
Workers
W
D0
L
Market for Auto Workers
Summary Table 2
Two input Markets, Capital and Labor.
Look at Labor Market and see a change
in the price of Capital
Cause
Change in the price of one of the things
held constant such as the price of Capital
Effect
Shift Labor demand curve
Language Increase or decrease in the demand for
labor
Note
Scale and Substitution Effects work in
opposite directions
Figure A-3.5: Supply Curve of Labor
S
W
$30
$20
$10
L
50
100
Figure A-3.6: An Increase in the Supply of Labor
W
S0
S1
$35.00
$10.00
$0.00
L
125
175
(1) Increase in Supply
(2) Increase in the Quantity Supplied At Each Wage
Figure A-3.7: The Market for Labor
W
S
$60.00
$35.00
D
$10.00
L
125
Figure A-3.8a: Excess Supply of Labor
W
S
$60.00
ES
$45.00
$35.00
D
$10.00
L
75
125
ES = LS - LD =
175
Figure A-3.8b: Excess Supply of Labor
W
$60.00
S
ES
$45.00
$40.00
$35.00
D
$10.00
L
75 100 125 150 175
New ES = LS - LD =
Figure A-3.9a: Excess Demand for Labor
W
S
$60.00
$35.00
$25.00
ED
$10.00
D
L
75
125
ED = LD - LS =
175
Figure A-3.9b: Excess Demand for Labor
W
S
$60.00
$35.00
$30.00
$25.00
$10.00
ED
D
L
75 100 125 150 175
ED = LD - LS =
*Figure A-3.10: The Market for Steel Workers
W
S
W0
D
L
L0
Figure A-3.11: The Market for Labor as an
Efficient Price Rationing Mechanism
W
S
$60.00
$35.00
D
$10.00
L
125
Figure A-3.12a: The Market for Labor: Illustrating
Employers’ Gains from Trade for One Unit
W
Employer Gains
For 50th unit
$60.00
S
$50.00
$35.00
D
$10.00
50
L
125
Figure A-3.12b: The Market for Labor: Illustrating
Employers’ Gains from Trade from All Units
W
S
Employer Gains
$60.00 a
for all units hired
$35.00
h
k
D
$10.00
L
150
Employer Gains from Trade = Area ahk = Total
Explanation for Figure A-3.12a and Figure A-3.12b
– 1. In Figure A-3.12a, the difference between the
demand price ($50) and the actual price ($35)
yields $15 gains from trade (GFT) for the
Employer of the 50th unit of labor hired.
– 2. In Figure A-3.12b, we must add together all
the GFT from all units of labor hired by all
Employers to get the total Employers’ GFT. This
yields the triangular area which can be thought
of as the total gains from trade (GFT) for
Employers for hiring 125 workers.
Figure A-3.12c: The Market for Labor:
Illustrating a Worker’s Gains from Trade
W
S
$60.00
Gains from
Trade for the
50th worker
$35.00
$20.00
D
$10.00
50
L
125
Figure A-3.12d: The Market for Labor:
Illustrating Workers’ Gains from Trade
W
S
$60.00
$35.00
$10.00
k
h
Worker Gains
from Trade for
all 125 workers
D
g
L
125
Total Gains from Trade for Workers = Area hkg
Explanation for Figure A-3.12c and Figure A-3.12d
• 1. In Figure A-3.12c, the difference between the
actual price ($35) and the supply price ($20) yields
$15 Rent for the 50th worker. Think of this as the
gains from trade by the 50th Worker.
• 2. In Figure A-3.12d, we must add together all the
Workers’ GFT from all units of labor hired to get
the total Workers’ GFT. This yields the triangular
area which can be thought of as the entire gains to
trade for the 125 Workers hired.
Figure A-3.13a: The Market for Labor—Maximizing
Gains from Trade
W
$60.00 a
$35.00 k
S
h
D
$10.00 g
L
125
Area ahg = Area ahk + Area khg = Total Gains from Trade
Figure A-3.13b: The Market for LaborIllustrating Welfare Losses (WL)
W
$60.00
S
WL = Area bhf
$50.00
$40.00
$35.00
$30.00
b
h
f
D
$10.00
D’
100 125
L
Figure A-13.3c: Effect of a Tax on Employers
• Tax on employers results in misallocation of
resources: Too little Labor used in Taxed Market
and too much Labor in the Untaxed Labor Markets
Employer Tax
Untaxed Labor
Markets
Labor
(Lower Valued
Uses)
Labor
Market
Labor Used
Decreases
Employer Tax in Labor Market is equivalent to a
subsidy for the Untaxed Labor Markets
Labor Used Increases
Figure A-3.14a: Towns in Nineteenth Century
Britain
W
W
S
S
W1
W0
D
D
L1
L
Towns where infant mortality is
higher or corporal punishment
is used in factories
L0
L
Towns where infant mortality is
lower or corporal punishment is
not used in factories
Figure A-3.14b: Towns in Nineteenth Century Britain
S
W
S’
W
NOTE: W1’ - W0’ > W1 - W0
W1’
W1
S’
S
W0
W0’
D
D
L1’L1
L
Towns where infant mortality is
higher or corporal punishment
is used in factories
L0 L0’
L
Towns where infant mortality is
lower or corporal punishment is
not used in factories
Figure A-3.16: The Volunteer Army
S
W
W
S
$20K
$15K
D
3M
MILITARY MARKET
D
L
L
50M
CIVILIAN MARKET
Figure A-3.17: The Draft
W
W
S
$20K
5
1 2
3 4
$5K
S’ $18K
$15K
S’
S
D
D
L
1m
3m 5m
MILITARY MARKET
L
46m 48m 50m
CIVILIAN MARKET
Explanation of Areas in Figure A-3.17
•
•
•
•
•
•
•
1. Areas 1 + 2 + 3 + 4 = Gains to Government
2. Areas 1 + 2 + 3 + 4 + 5 = Losses to Soldiers
3. Area 5 = Net Loss = WL
4. Area 1 =
5. Area 2 =
6. Area 3 =
7. Areas 4 +5 =