Economics / Unit 6: Business Organization and Labor
6.4 The Labor Market and Wages
Notes
Wages are the price of labor, set by the supply of and demand for workers.
- The labor force is people age 16 and over who are working or actively looking for work.
- Demand for labor is a derived demand: firms want workers because consumers want the goods those workers make. If demand for houses rises, demand for carpenters rises.
- Firms hire more workers when wages fall or when workers become more productive.
- Wages are usually higher when workers have scarce skills, more human capital, or work in dangerous or unpleasant jobs.
- Labor is often grouped as unskilled, semi-skilled, skilled and professional. Professional and skilled jobs usually require more education and pay more.
- Federal law requires covered workers who work over 40 hours a week to get overtime pay of at least 1.5 times the regular rate. Worked example: at $16 an hour for 45 hours, pay is $40 \times 16 + 5 \times 24 = 640 + 120 = 760$ dollars.
Practice
Demand for electric cars rises sharply. What happens to the demand for workers who build electric car batteries?
Firms need more workers to meet higher demand for the product.
Why do surgeons usually earn more than cashiers?
Scarce, high human-capital skills command higher wages.
A worker earns $18 per hour and works 44 hours in one week at a job covered by federal overtime rules. What is her pay for the week?
$40 \times 18 = 720$, plus $4 \times 27 = 108$ for overtime, totals $828.
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