CH 18

Fall 2025
Textbook: Modern Principles of Economics, Sixth Edition by Tyler Cowen and Alex Tabarrok
Publisher: Worth Publishers, 2024

Definition: The increase in a firm’s revenues created by hiring an additional laborer.

Example of Janitors:

Number of Janitors	Task	MPL (per hour)
1	Clean restrooms, once a day	$35
2	Empty trash	$30
3	Clean restrooms, second time in a day	$24
4	Wash floors	$20
5	Pick up outside trash	$16
6	Clean restrooms, third time in a day	$12
7	Clean windows	$11
8	Remove gum from the bottom of tables	$8

Analysis:
- A firm is willing to hire a laborer when their MPL is greater than the wage being paid.
- MPL for the first janitor is $35. Hiring Implications:
- If wage > $35, no janitors will be hired.
- If wage falls between $30 and $35, it’s profitable to hire one janitor.
- If wage falls between $25 and $30, two janitors can be hired profitably.

Relationship dynamics:
- As wages decrease, firms hire more workers and assign them to less critical tasks.
- The MPL declines as more workers are hired; firms continue hiring until MPL = wage.

General Characteristics:
- The market supply curve for labor is upward sloping.
- Some workers increase hours as wages rise.
- Higher wages in one industry attract workers from others.
- Individual supply curves may show a variety of slopes, including zero, positive, or negative.

Case Study: Joe's Work Hours based on Wage:
- 40 hours worked when wage is between $7 and $16.
- Increased hours between wages $16 and $20.
- Reduced hours if wage exceeds $20.
- Market supply remains upward sloping.

The intersection of labor demand and supply determines the wage rate.
MPL = W indicates firms hire workers until this equality is reached.
Example in the janitor market:
- 2.3 million janitors in the U.S. working 92 million hours weekly.
- Average wage of a janitor is $15/hour.

Comparison:
- Indian janitors earn approximately $1,000/year; U.S. counterparts earn up to $40,000/year.
Factors Influencing Wage Disparity:
- Higher marginal product due to productivity differences in economies.
- Lower supply of janitors in the U.S. compared to India increases wages.

Definition: Tools of the mind that enhance productivity.
Key Points:
- Wage disparities correlated with human capital investments in education and training.
- College graduates earn nearly two times more than high school graduates.
Trends:
- Demand for skilled workers is rising (numeracy, communication, creativity, technical skills).
- Technology and global competition limit low-skilled wage growth.
- Rate of college graduates has plateaued over time.

Graphical Data:
- Shows annual wages and unemployment rates correlated with levels of education (high school diploma, associate degree, bachelor’s degree, etc.).

Definition: Differences in wages that offset variations in working conditions.
Implications:
- Real wages account for both monetary compensation and conditions of employment.
- Dangerous occupations tend to compensate higher due to lower labor supply.
- Jobs perceived as enjoyable may pay less compared to riskier roles.
Adjustment Mechanism:
- Wages align until similar jobs attract similar compensation packages.

Accessibility Trends:
- Labor unionization rates are lower in the U.S. and Switzerland compared to Western Europe.
Effects of Unionization:
- Unionized positions typically offer higher wages than non-union roles.
- Unions play roles in bettering labor relations and equity in treatment.
- Unions can elevate wages but may restrict employment.

Statistical Discrimination:
- Utilizing group averages to draw conclusions about individuals, which is often mistaken and harmful.
Preference-Based Discrimination:
- Occurs from biases against certain groups (by employers, customers, employees).
- Employers may lose profit on discriminated groups; competition ultimately may erode such biases.

Discrimination by customers leading to a preference for specific individuals; this bias may decrease as labor market dynamics shift.
Discrimination based on physical traits, like height and attractiveness, linked to wage variations.

Higher wages in affluent countries relate to:
- Greater physical capital
- Enhanced human capital through education
- Efficient and adaptable working environments
Compensating differentials illustrate the wage structure relative to job enjoyment and danger.
Unions can increase particular worker wages but do not solely account for elevated salaries in wealthy economies.
Discrimination reduces over time as market forces adjust.

Complete Chapter 18 End-of-Chapter Problems due by 8 am next class.
Watch and read content on "Examining Hawaii's Job Market" by the specified deadline for submission.
Optional extra credit tasks available regarding resume feedback.