Workers in the United States lose their jobs when jobs are sent to other countries.
Outsourced jobs are moved from high cost areas to low cost areas.
More than one job is created in another country when a U.S. job is lost to outsourced.
The cost of manufacturing goods and providing services can be lowered by outsourcing.
Lower costs translate into lower prices for U.S. consumers and businesses.
Firms in the U.S. compete in the global economy.
The demand and supply of resources are examined in this chapter.
An essential part of the market economy is the outsourcing of jobs.
Firms that maximize profits must decide how much to produce.
Firms must combine the right amount of labor and capital in order to maximize output and hold down costs.
The labor market is where we begin to look at the costs of production.
Supply and demand are used to show the role of the labor market in the U.S. economy.
Lesson learned about labor into the markets for land and capital.
Income inequality, unemployment, discrimination, and poverty are examined in Chapter 15.
Two thirds of the income generated by the U.S. economy is generated by wages and salaries.
Sophia would like to open a Mexican restau named Agaves.
The labor inputs are the dining room staff, cooks, dishwash ers, and managers.
She needs a physical location and land input.
She will need a building to operate, along with ovens and other kitchen equipment, seating and tableware, and a cash register.
Sophia's restaurant won't need any help if there's no demand for her food.
Sophia secures the land, builds a building and hires employees to produce food for her.
She is willing to spend a lot of money to build and staff the restaurant because she expects there to be demand for the food.
The demand for an input used in the production process is not limited to the demand for a certain type of cuisine.
Consumer demand for iPad causes Apple to demand the resources needed to make them.
Many people find a lack of customers very useful.
When economists work at restaurants.
A friend waits tables at a restaurant for 60 hours a week.
He is discouraged because he can't seem to make enough money to pay his bills.
He has to work so many hours to make ends meet because the restaurant doesn't have enough business.
He should apply for a job at a more popular restaurant because labor is a derived demand.
He will earn more tip income if he works at a place with more customers.
As a student, you hope that your education will help you land a job one day.
You might be thinking about potential earnings in different occupations as you choose a major.
Economists earn more than elementary school teachers but less than engineers.
Night shift workers earn more than their day shift counterparts.
Professional athletes and successful actors make more money for jobs that are not as important as janitors, construction workers, and nurses.
It's obvious that demand helps to regulate the labor market in the same way that it helps to determine the prices of goods and services sold.
The demand for labor is correlated with the value that each worker creates.
We will look at the factors that influence labor demand to develop a more complete understanding of how the labor market works.
To understand how labor demand is determined, we need to look at the restaurant business, a market that is highly competitive.
The output of labor is compared to the wages the firm must pay to determine how many workers to hire.
The analysis of production will be applied to the labor market in the restaurant business.
The key factors of the labor hiring process are highlighted in Table 14.1.
We're going to work our way through the table.
When the firm moves from three to four, there will be an additional worker.
The marginal product of labor for the fourth worker is the increase of 20 meals.
As additional workers are added, the values in column 3 decline.
The marginal product of labor is how much each worker adds to the firm's output.
Combining the marginal product of labor with the price the firm charges gives us a tool that we can use to explain how many workers the firm will hire.
Agaves charges $10 for each meal.
The wage that must be paid is compared with the cost of product in column 5.
The price of the output it produces tipped the process.
The green numbers show that the marginal profit is positive for the first four workers.
The fifth worker's VMP is greater than the wage the firm pays, if the firm hires four full- time workers plus a fifth part- time worker.
The marginal cost of hiring a fifth worker is equal to the marginal benefit for the firm.
The firm wouldn't hire the sixth worker because the marginal profit was negative.
The firm's willingness to pay for each worker is called the VMP.
The firm's labor demand curve is what it is.
The diminishing marginal product causes the VMP curve to slope downward.
The firm will hire more workers if the value of the marginal product is higher than the market wage.
The firm's labor demand curve is the value of the marginal $500 product.
The firm will hire more workers if the marginal product's value is $400 more than the market wage.
Because labor is subject to diminishing $200 marginal product, eventually the value created by Market wage is less than the market wage.
The VMP is $500 for the demand and supply of resources.
The amount easily exceeds the market wage of hiring an extra worker and creates a marginal profit of $400.
The second, third, and fourth workers make an additional profit of $300, $200, and $100, which is represented by the green arrows.
When the value of the marginal product declines, there will be a point when hiring additional workers will cause profits to fall.
The value created by hiring additional labor eventually falls below the market wage because labor is subject to diminishing marginal product.
Agaves hires workers to satisfy their customers and we know that customers want good food.
At high wages Agaves will use fewer workers, and at low wages it will hire more workers.
The blue arrow moves along the original demand curve to show the law of demand.
A change in price results in a change in quantity demanded.
The demand for workers depends on the number of customers who place orders.
Changes in the restaurant business can affect the number of workers that the restaurant hires.
If the number of customers increases, the demand for workers will increase or shift to the right.
If there is a decrease in the number of customers, the demand for workers will decrease or shift to the left.
There are two factors that shift labor demand: a change in demand for the product that the firm produces and a change in the cost of producing that product.
The value of the marginal product of labor is more important to a firm than the cost of hiring labor.
Many customers will switch to Agaves if a Mexican restaurant closes.
The entire demand curve for cooks, table clearers, and A machine at Mcdonald's helps to fill the drink orders will be caused by Agaves preparing more meals.
Sometimes a change in the cost of production can be positive, such as when a new technology makes production less expensive.
When the cost of a needed raw material increases, it can make production more expensive.
Technology can act as a substitute for workers in a positive way.
The same number of meals can be prepared with fewer workers by using microwave ovens.
The use of conveyor belts and automated systems to help prepare meals is a growing trend.
Changes in technology can affect a firm's demand for workers.
In the long run, substituting technology for workers may seem like a bad idea.
In the long run that isn't usually the case.
The demand for lumberjacks is affected by technological advances.
Traditional logging jobs can be dangerous and inefficient if timber companies invest in new harvesting technology.
The workers are freed up to work in other parts of the economy when the lumber companies use the new technology.
The result is fewer timber jobs in the short term.
This adjustment is painful for the workers involved, and they often have difficulty finding jobs that pay as well as the job that they lost.
The One John Deere 1270D harvester can replace 10 lumberjacks, but it requires highly skilled operators who can fell more trees.
Can penny make five flower barrettes in an hour?
In 8 hours, she can make 40 barrettes.
The marginal product of labor, or VMPlabor, is the difference between the price of a barrette and the cost of labor.
The marginal profit from hiring her is how many flower barrettes she makes.
Harvester operators can command higher wages because they have a higher marginal product of labor.
There are 10 traditional lumberjacks in need of a job for every harvester operator employed at a higher wage.
What happens after the job losses?
While one worker harvests trees, the 9 other workers are forced to move into related fields or do something completely different.
It might take some workers a long time to find a new job, but once they do, society benefits.
10 workers used to take 1 to produce, and 9 other workers are able to work in other jobs and grow the economy in different ways.
If labor becomes more productive, the VMP curve shifts to the right, driving up both wages and employment, which is exactly what happens with the demand for harvester operators.
The demand for traditional labor could fall due to substitution.
This has happened to traditional lumberjack jobs, leading to a decrease in wages.
The wage rate and the number of workers who are willing to supply their services to employers are connected in this section.
Some workers may want to cut back on their hours at high wage levels.
Other employment opportunities, the changing composition of the workforce, migration, and immigration are some of the factors that influence the labor supply.
People work to make ends meet.
Many workers enjoy their jobs, but this doesn't mean they would work for nothing.
Most of us have other interests, obligations, and goals that we don't enjoy working on.
The supply of labor depends on both the wage that is offered and how people use their time.
Most people in our society must work to meet their basic needs.
Once those needs are met, a worker might be more likely to use his or her time in leisure.
Workers may be willing to work more hours at higher wages.
Suppose that Emeril is doing labor for leisure.
He works 40 hours at $10 per hour and can also work 4 hours overtime.
If he decides to work overtime, he will end up working 44 hours and earning $440
Some workers may work less hours at higher wages.
The substitution effect and their additional income may outweigh the income effect at high hours.
For example, suppose that Rachael works overtime for $10 an hour.
Her total pay will be between $10 and $440 She may continue to work the overtime at a higher wage if her wage increases to $11.
If she doesn't work overtime, she will make the same amount of money as she did before the wage increase, and she can either work fewer overtime hours or stop working overtime altogether.
When Rachael's wage goes up, she chooses to work fewer hours.
The labor supply curve can be affected by wage increases.
The number of hours worked increases from Q1 to Q2 to Q3 when the wage increases.
The number of hours worked is large at high wage rates.
Workers might experience diminishing marginal utility from the additional income and thus value increased leisure time more than increased income.
The normal supply curve bends backwards between W2 and W3 if workers choose to work less in this situation.
The income effect may become larger than the substitu W2 tion effect and cause the labor supply curve to bend backward.
W1 occurs when leisure time becomes more valuable than income.
When the income effect is large enough to offset the substi leisure more than the additional tution effect, the labor supply curve workers value additional bends backward.
The supply curve will be drawn upward because most workers in the real world don't reach wage level W2 which is a wage at which they might begin to value leisure more than labor.
It's important to know that the direct relationship we normally observe doesn't always hold.
There are a number of factors that determine the supply of labor.
The wage rate is not the only factor that governs the supply of labor.
When the wage rate increases, the quantity of workers increases.
The supply curve is affected by three factors: other employment opportunities, the changing composition of the workforce, and migration and immigration.
The supply of workers for any given job depends on the prevailing wage in related labor markets.
The supply of labor at Agaves should be considered.
The red arrow is moving along the original supply curve.
The supply of table clearers is dependent on a number of people.
The number of laborers willing to work is influenced by the prevailing wages in similar jobs because table clearers are mostly young and unskilled.
If the wages of baggers at local grocery stores increase, some of the table clearers at Agaves will decide to bag at local grocery stores instead.
The leftward shift to S3 will be caused by the decreasing supply of table clearers.
If the wages of baggers were to fall below the wages of table clearers, the supply of table clearers would increase or shift to the right.
When jobs that require comparable skills have different wage rates, the number of workers willing to supply labor for the lower- wage job will shrink and the number willing to supply labor for the better- paid job will grow.
The labor force participation rate has increased in most developed countries over the last 30 years.
The United States, Switzerland, and New Zealand all saw their female/male ratios go up.
There are many more women employed in the workforce today than there were a generation ago, and the supply of workers in many occupations has expanded significantly as a result.
Immigration and migration are important factors in the supply of labor.
Immigration increases the available supply of workers by a significant amount each year.
Over half a million people from foreign countries entered the United States through legal channels in 2015.
The United States has over 40 million legal immigrants.
Many illegal immigrants enter the United States to work as hotel maids, janitors, and fruit pickers.
When states suggest or pass a tough immigration law, businesses in food and beverage, agriculture, and construction protest because they need inexpensive labor to remain competitive.
Many states have wrestled with the issue, but policies that address illegal immigration are controversial.
The states want cheap labor but don't want to pay for medical care, as well as the cost of educating the illegal immigrants' children.
The state economy would come to a halt.
Californians have to do without low cost workers to take care of their homes.
The film points out that migrants from Mexico add a tremendous amount of value to the local economy through their purchases as well as their labor.
A scene depicts a television commercial for a "disappearance sale" put on by a local business after it learns that most of its regular customers are gone.
We consider migration to be the pro cess of moving from one place to another in the United States.
The US population grows at an annual rate of 1%, but there are significant regional differences.
Large population influxes lead to marked regional changes in the demand for labor and the supply of people looking for work.
The 10 fastest-growing states in 2010 were in the South or West, with some states adding as much as 4% to their population in a single year.
Nevada, Utah, North Carolina, Idaho, and Texas all added at least 20% to their populations from 2000 to 2010, giving them 84% of the nation's population growth from 2000 to 2010.
Significant changes can be hidden by statewide data.
A number of counties experienced 50% or more population growth between 2000 and 2010 according to census data.
The suburb of Chicago that grew the most between censuses was Kendall County, Illinois.
The county has transitioned from an agricultural area to a bedroom community.
Kendall is a relatively distant suburb of major metropolitan areas.
New homes are available in these areas at reasonable prices.
Your friend is worried about his uncle, who just got a raise.
Your friend doesn't understand why his uncle wants to travel.
The labor supply curve is usually thought of as upward sloping, in which higher wages translate into more hours worked and less leisure time.
The labor supply curve bends backward when the worker's wage increases.
This tendency is reflected by your friend's uncle.
Markets reconcile the forces of demand and supply through pricing.
We are ready to see how the equilibrium wage is established after considering the forces that govern demand and supply in the labor market.
We can identify what causes shortages and surpluses of labor, why outsourcing occurs, and what happens when there is a single buyer of labor.
The goal of this section is to show you how to use demand and supply curves to understand the labor market.
Wages are the price at which workers are willing to rent their time to employers.
There is high supply of workers and low demand.
There is a shortage at low wages.
The wage rate should be raised until the equilibrium wage is reached.
There is a surplus of workers.
The downward pressure on wages is caused by the surplus.
Fewer workers are willing to rent their time to work.
The surplus of workers is eliminated when wages go down.
The number of workers willing to work in that profession at that wage is equal to the number of job openings that exist at that wage.
The labor market is guided by a similar process.
Firms are forced to raise wages to attract workers.
Wages rise until the shortage is eliminated.
There is a shortage of nurses in the United States.
It takes years of training for a nursing job.
Demand for nursing care is expected to increase as baby boomers age.
The pool of nurses is rapidly aging and nearing retirement.
According to the Bureau of Labor Statistics, there will be a shortage of nurses in America by the year 2025, making nursing the number one job in the country.
The economists think that the shortage of nurses will be gone by 2025.
There is upward pressure on wages from a shortage.
In this case, rising wages show that nursing services are in high demand and that wages will continue to rise.
A surge in nursing school applications has been caused by this situation.
The labor market for nurses won't return to equilibrium immediately because the training process takes two or more years to complete.
There will be a nursing shortage for a few years until more nurses are supplied to the market.
Many of the tasks that nurses traditionally carry out, such as taking patients' vital signs, will likely be shifted to nursing during that time.
The combination of more newly trained nurses entering the market and the transfer of certain nursing services to assistants and technicians will eventually cause the nursing shortage to disappear.
When a market is out of balance, forces are acting on it to get it back to normal.
Now that we have seen how labor markets work, let's see what happens when demand and supply change.
There is a shift in labor demand and a shift in labor supply.
The equilibrium wage and equilibrium quantity of workers are adjusted accordingly.
The shift in labor demand is shown in panel a.
Imagine that the demand for medical care increases due to an aging population and that, as a result, the demand for nurses increases, causing a shift in the demand curve from D1 to D2.
There is a shortage of workers equal to Q3 - Q1 at wage W1.
Wages increase from W1 to W2 as a result of the shortage.
As wages go up, nursing becomes more attractive.
Existing nurses decide to work longer hours or delay retirement as more people enter the field.
The number of nurses increased from Q1 to Q2.
The wage is settled at W2, and the number of nurses is reached.
When the supply of nurses increases, we see what happens.
The supply shifts from S1 to S2 when additional nurses are certified.
The result is a surplus of workers equal to Q3 - Q1 at wage W1, which puts downward pressure on wages.
The market wage settles at W2, the new equilibrium point is E2, and the number of nurses employed reaches Q2.
We explain how outsourcing works, why companies do it, and how it affects the labor market for workers.
In the publishing industry, page make- up is often done overseas to take advantage of lower labor costs.
The labor is lower.
A qualified worker can lay out book pages anywhere in the world.
The pool of potential workers expands when countries are outsourcing.
If a labor expansion is driven by outsourcing or by an increase in the domestic supply of workers, those who are already employed in that particular industry will earn less.
There is an increase in unemployment in the occupation that can be outsourced.
W2 nurses are employed.
Shortage surplus of workers equal to Q3 - Q1 causes the equi librium wage to fall and the number of nurses to rise.
When we think of outsourcing jobs, we usually think of call centers.
Some infertile couples are outsourcing their preg nancy to surrogate mothers in India.
surrogate mothers are impregnated with eggs that have been fertilized Since 2002, when it was legalized in India, it has been legal in many other countries, including the United States.
Doctors work with surrogates in almost every major city in India.
A nine-month commitment for a surrogate mother earns around $5,000.
The amount is the same as what low skilled workers in India earn in 10 or more years.
In India, infertile couples are matched with infertile couples with $10,000 for all of the costs associated with local women, such as surrogate mothers.
The misconception that outsourcing is bad for the economy was started in our chapter.
Many people hold that opinion because they imagine the jobs that are lost in the short run when they think of outsourcing.
Outsourced jobs are not lost, they are relocated to cheaper areas.
Lower production costs are one of the benefits of outsourced work.
Lower costs translate into lower prices for consumers and help firms compete in the global economy.