merged

Example 12: Khalid’s Kwik Shop, located in Fort Worth, employs 160 to 240 hours of
convenience store clerk labor each week. The total quantity of this type of labor employed in Fort
Worth is about 60,000 hours per week. Khalid’s hiring decision will not affect the market wage
rate for convenience store clerk labor. Khalid’s marginal factor cost will be the same as the
market wage rate.
Labor Supply Curve in a Particular Labor Market
The labor supply curve in a particular labor market will be upward sloping. The quantity of labor
supplied in the market will increase as the wage rate increases, and will decrease as the wage
rate decreases. Changes in the wage rate change the quantity supplied of labor (a movement
along the labor supply curve) but do not cause a change in labor supply (a shift of the labor
supply curve).
Example 13: If convenience stores in Fort Worth want to employ 20 percent more convenience
store clerk labor, the wage rate will have to increase in order to attract a greater quantity supplied
of this type of labor.
Determinants of Labor Supply
If the labor supply curve shifts to the right (increase) or to the left (decrease), this is a change in
labor supply. Factors that cause the labor supply curve to shift are the determinants of labor
supply:
1. Wage rates in alternative labor markets. An increase in wage rates in alternative labor
markets will cause a decrease in labor supply in the particular labor market being examined. A
decrease in wage rates in alternative labor markets will cause an increase in labor supply in
the particular labor market being examined.
Example 14: If the state of Maine increases salaries for its public school teachers, the supply of
public school teachers in New Hampshire will decrease (as some New Hampshire teachers move
to the Maine market).
2. Nonmoney aspects of a job. Workers prefer pleasant working conditions rather than
unpleasant working conditions. If a job becomes more pleasant (e.g. safer, cleaner, less
stressful, etc.), the supply of labor in that labor market will increase. If a job becomes more
unpleasant (e.g. more dangerous, dirtier, more stressful, etc.), the supply of labor in that labor
market will decrease.
Example 15: If medical researchers discover that prolonged exposure to chemical cleansers
causes janitors to have a high rate of cancer, the supply of persons willing to work as janitors will
decrease.
Differences in Wage Rates
Wage rates in different labor markets differ. The average major league baseball player may earn
70 times more than the average public school teacher. A heart surgeon will earn much more than
a tree surgeon. Why are there differences in wage rates? Five factors cause wage rates in
different labor markets to differ:
1. Differences in workers’ MRP. The more MRP a worker can generate, the greater the
demand for that worker’s labor.
FOR REVIEW ONLY - NOT FOR DISTRIBUTION
Example 16: The head football coach at State University may generate millions of dollars in
revenue for the university, and will be paid accordingly. The head football coach at Local High
School will generate much less revenue, and will be paid accordingly.
Factor Markets 24 - 6