Lectures in Macroeconomics- Charles W. Upton Determining Wage Rates Determining Wage Rates D S H* w*
Lectures in Macroeconomics- Charles W. Upton Determining Wage Rates.
Dec 20, 2015
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Lectures in Macroeconomics- Charles W. Upton
Determining Wage RatesDetermining Wage Rates
D
S
H*
w*
Determining Wage Rates
Labor Supply and Demand
D
S
H*
w*
Determining Wage Rates
Labor Supply and Demand
D
H
w
Determining Wage Rates
Labor Supply and Demand
D
H
wDemand for hours of work. All workers
are alike, so an hour of work is an hour of
work.
Determining Wage Rates
Labor Supply and Demand
S
h
w
Each worker supplies h hours of work. The
higher the wage rate, the more hours supplied.
Determining Wage Rates
Labor Supply and Demand
S
h
w
A major simplification; we come back to this
supply curve in subsequent lectures.
Determining Wage Rates
Labor Supply and Demand
S
h
w
Total supply is
H =hN*
Determining Wage Rates
Labor Supply and Demand
D
S
H*
w*
Determining Wage Rates
Assumptions
• All N* workers are alike
• w* is the hourly wage rate
• Each worker spends
h* = H*/N* hours in work
Determining Wage Rates
A Spending Spree
D
S
H*
w*
D’
H’
w’• Perhaps the government starts
to spend more.
• Perhaps people become more optimistic about the future.
Determining Wage Rates
A Spending Spree
D
S
H*
w*
D’
H’
w’
Determining Wage Rates
A Spending Spree
D
S
H*
w*
D’
H’
w’Wage Rates Up
Determining Wage Rates
A Spending Spree
D
S
H*
w*
D’
H’
w’People work harder.
Determining Wage Rates
A Spending Spree
D
S
H*
w*
D’
H’
w’People make more money
Determining Wage Rates
A Spending Spree
D
S
H*
w*
D’
H’
w’People make more money
Many make this argument to support increased government spending when times are bad.
Determining Wage Rates
A Spending Spree
D
S
H*
w*
D’
H’
w’People make more money
Many make this argument to support increased government spending when times are bad.
As we shall see there is more to the story.
Determining Wage Rates
Labor Supply and Demand
D
S
H*
w*We will apply this to some
additional cases
Determining Wage Rates
Labor Supply and Demand
D
S
H*
w*We will apply this to some
additional casesMore people reach
working age
Determining Wage Rates
More people reach working age
D
S
H*
w*
S’
H’
w’
Determining Wage Rates
More people reach working age
D
S
H*
w*
S’
H’
w’
The wage rate falls
Total hours worked rise
Determining Wage Rates
More people reach working age
D
S
H*
w*
S’
H’
w’
The wage rate falls
Total hours worked rise
Hours per worker fall
Determining Wage Rates
More people reach working age
D
S
H*
w*
S’
H’
w’
The wage rate falls
Total hours worked rise
Hours per worker fall
With hours per worker falling and wage rates
falling, income per worker falls, just as Malthus predicted.
Determining Wage Rates
More people reach working age
D
S
H*
w*
S’
H’
w’
Not everyone works. Suppose more people
worked. Same effects.
Determining Wage Rates
More people reach working age
D
S
H*
w*
S’
H’
w’
Not everyone works. Suppose more people
worked. Same effects.Factoid
During the 1930’s this argument was used in
support of social security and against women
working
Determining Wage Rates
More people reach working age
D
S
H*
w*
S’
H’
w’
Not everyone works. Suppose more people
worked. Same effects.Factoid
During the 1930’s this argument was used in
support of social security and against women
working
The fewer people working, the higher the
wages for “real” workers.
Determining Wage Rates
New technology, more capital
D
S
H*
w*
D’
H’
w’
Determining Wage Rates
New technology, more capital
D
S
H*
w*
D’
H’
w’
Wage rates up
Determining Wage Rates
New technology, more capital
D
S
H*
w*
D’
H’
w’
Wage rates upPeople work harder
Determining Wage Rates
New technology, more capital
D
S
H*
w*
D’
H’
w’
Wage rates upPeople work harder
People make more money
Determining Wage Rates
End
©2004 Charles W. Upton. All rights reserved
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