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Chapter 2

Overview of The Labor Market

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Labor Force Status of the U.S. Adult Population, 1994Figure 2.1

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Unemployment Rate = Unemployed/Labor Force

Labor Force Participation Rate = Labor Force/Population

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Unemployment Rates for the Civilian Labor Force, 1900-1994Figure 2.2

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Employment Distribution by Major Industrial Sector, 1990-1997Figure 2.3

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Relationship between Wages, Earnings, Compensations, and Income

Figure 2.4

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The Markets in Which Firms Must OperateFigure 2.5

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LABOR DEMAND

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Labor Demand Curve (based on data in Table 2.3)Figure 2.6

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Shift in Demand for Labor Due to Increase in Product DemandFigure 2.7

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Shifters of Demand

• Product Demand

• Prices of Substitutes and Complements

• Expectations

• Not Wages!!

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Wages Rise/Employment Falls

• Scale Effect – Costs rise– Prices rise– Sell less of the product– Need fewer workers

• Substitution Effect– Switch to capital– Need fewer workers

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Possible Shifts in Demand for Labor Due to Fall in Capital PricesFigure 2.8

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Different Labor Markets

• Market – demand for attorneys

• Industry – university demand for law professors

• Firm – U of A demand for law profs.

• These are all affected by wages differently

• These all affect wages differently

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LABOR SUPPLY

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Market Supply Curve for SecretariesFigure 2.9

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Shifters of Supply

• Wages in other professions

• Economy

• Population

• Costs/barriers such as education

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Shift in Market Supply Curve for Secretaries As Salaries of Insurance Agents Rise

Figure 2.10

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Supply of Secretaries to a Firm at Alternative Market Wages(More Elastic)

Figure 2.11

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Market Demand and SupplyFigure 2.12

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Demand and Supply at the “Market” and “Firm” LevelFigure 2.13

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New Labor Market Equilibrium After Demand Shifts RightFigure 2.14

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New Labor Market Equilibrium After Supply Shifts LeftFigure 2.15

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New Labor Market Equilibrium After Supply Shifts RightFigure 2.16

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New Labor Market Equilibrium After Supply and Demand Shift Left

Figure 2.17

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Effects on Labor Market Equilibrium of Industrywide UnionsFigure 2.18

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How Unions That Control Supply of Labor to a Market AffectLabor Market Equilibrium

Figure 2.19