Labor Market workers are the supply companies are the demand because they demand the labor x axis is wage y axis is quantity of workers equilibrium wage and quantity are determined by supply of and demand for a each 4 20 15 category of labor MP marginal product VMP value marginal product of labor Cost benefit MC MB W wage VMP VMP P x MP Revenue P x Q to determine how many workers to hire you compare the wage to VMP Individual labor supply individuals trade off income and leisure more work hours means more income and LESS leisure suppose the wage increases substitution effect work more leisure is more expensive Income effect work less purchasing power increases for a given work schedule a higher wage may increase or decrease the quantity of labor supplied by the individual Human Capital Human Capital the accumulated education training work ethics and other aspects that affects an individuals value of marginal product VMP individuals make decisions about acquiring human capital Human Capital Theory holds that a workers wage is proportional to his human capital some jobs require more human capital these jobs pay more Demand for different kinds of human capital also cause earning differences Labor Unions Labor Union group of workers who bargain with employers for better wages and working conditions entry to the union is restricted Unions restrict the supply of labor and raise wages similar to the cartel unions create the supply of labor to the non union companies Wages in non union companies go down Negative Income Tax Advantages Disadvantages
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