Chapter 11: Labor Markets

Marginal Revenue Product (MPR)

the increase in a firm’s total revenue resulting from hiring an additional unit of labor or other variable resource

MPR = P x MP

Demand curve for labor

a curve showing the different quantities of labor employers are willing to hire at different wage rates in a given time period, ceteris paribus; it is equal to the marginal revenue product of labor

A firm hires additional workers up to the point where the MRP ____ the wage rate

equals

at any point above the wage rate, the cost of a worker is ____ than the dollar value of any worker’s contribution to total revenue (MRP)

more

Derived Demand

the demand for labor and other factors of production that depends on the consumer demand for the final goods and services the factors produce

supply curve of labor

a curve showing the different quantities of labor workers are willing to offer employers at different wage rates in a given time period, ceteris paribus

Human capital

the accumulation of education, training, experience, and the level of good health that enables a worker to enter an occupation and be productive

In a perfectly competitive market, what determines the equilibrium wage rate?

the intersection of the supply of labor and the demand for labor curves

Three basic strategies unions use to raise wages

* increase the demand for labor
* decrease the supply of labor
* exert power to force employers to pay a wage rate above the equilibrium wage rate

featherbedding

unions force firms to hire more workers than the firm would otherwise employ or to impose work rules that reduce output per worker

Ways that a union can decrease the supply of labor

* require a longer apprenticeship
* charge higher membership fees
* use some other device designed t reduce union membership, such as lobby for legislation to reduce immigration or to shorten working hours

collective bargaining

the process of negotiating labor contracts between the union and management concerning wages and working conditions

**The National Labor Relations Act (Wagner Act)**

the Wagner Act, passed in 1935, guaranteed workers the right to form unions and to engage in collective bargaining

* resulted in a surge in union membership between 1935 and 1945

**Monopsony**

a labor market in which a single firm hires labor

* the absence of other firms in the area competing for relatively immobile labor is the reason for a monopsony

Marginal Factor Cost

the additional total cost resulting from a one-unit increase in the quantity of a factor

If the monopsonist wants to hire more labor, it must offer -

\- higher wages not only to each additional worker, but also to all previously hired workers

Monopsonistic Equilibrium

the monopsonist in the labor market hires the quantity of labor at which the marginal revenue product of labor equals its marginal factor cost

A monopsonist hires workers and pays a *___* wage than a firm in a competitive labor market.

fewer ; lower