9.2 Labor market and wage
Wages forms a large part of the income of the consumer. Wages understood in the broad and narrow sense. In a broad sense, the term includes payment of various workers (workers in various professions, qualified professionals), whose work is expensive to education small business owners that provide personal services. With this approach, and it includes revenue from royalties, bonuses and other forms of remuneration. In a narrow sense, a wage means the wage rate, ie, the price paid for a unit of work for some time: the year of the day, etc.
Distinguish between nominal wages and real.
Under nominal wage means the sum of money that gets paid employees for their daily, weekly, monthly labor. Largest nominal wages can judge the level of earnings, income, but not on the level of consumption and wealth.
Real wages - is the mass of vital goods and services that can be bought for the money. It is in direct proportion to the nominal wage and the price level of consumer goods and services.
Subject of demand on the labor market are the business and the state, and subject of the sentence - the household. The demand for labor is inversely related to the value of wages. When the wage employed in order to maintain a balance must therefore reduce the demand for labor, but at lower wages the demand for labor increases.
The functional relationship between the value of wages and the size of the demand for labor is reflected in the labor demand curve (Fig. 12), which shows that at lower wages corresponds to high demand for labor and vice versa.
Labor supply curve shows that an increase in real wages increases the supply of labor, and at lower labor supply decreases (Fig. 13). The total supply of labor in society is dependent on many factors that determine the quality and quantity of services work, among which the most important are the total population of the country and the share in it of the economically active population, the average hours of work, vocational qualification structure of employees, etc.
W/P
W/P
LD LS
L L
Fig. 12. The demand curve for labor Fig. 13. Labor supply curve
Combining both graphs, the demand curve and the supply curve of labor, can be analyzed in more detail the situation in the labor market. Particular attention should be paid to the point E. This point on the graph represents a certain level of real wage W / PE and given this level of labor supply LE. At point E, the demand for labor equals supply of labor, which means that the labor market is in equilibrium, i.e. all businesses are willing to pay the wages W / R E, is on the market the necessary amount of labor, their labor demand satisfied in full. Thus, the point E - the position of full employment.
In case of excess real wage equilibrium level W/P2 labor supply LS2 exceeds demand LD2 on the value LD2-LS2. In this case, not enough jobs for everyone who wants to sell their labor for wages W/P2. There is an excess supply of labor, measured segment LD2-LS2on the horizontal axis (unemployment).
W/
P
LD
LS
unemployment
W/P2
W/PE
Е
W/P1
LS1 LD2 LE LS2LD1 L
Fig. 14 Equilibrium in the labor market
In the event of a decrease W/P2 in real wages compared to the equilibrium, the demand for labor LD1 exceeds supply LS1 on the value of LS1-LD1. Results in the formation unfilled jobs, due to a lack of workers willing to work for lower wages (Figure 15.).
Fluctuations in the demand for labor and the supply of labor can in a general way to answer the question of why high or low wages. Therefore the question of wage differentiation / 1.s.240 /.
Differentiation of wages - an objective phenomenon, extending professional staff workers and migration between groups of different professions cannot be completely smooth.
It is important to stop on an important and interesting economic phenomena that characterizes the offer of individual labor
From conventional labor supply curve, as discussed earlier, the supply curve of labor is characterized by its individual configuration. Up to the point I curve shows an increase in the supply of labor with the growth of wages - it is removed from the vertical axis.
However, after passing the point I, LS curve changes direction. She bends over and close to the vertical axis shows a paradoxical situation. Since an increase in salary every hour worked better paid, every hour of free time employee is perceived as increased loss, more profits.
LS
W ← revenue effect
W
i
I
← substitution effect
Li L
Рис. 14. Offer individual labor
His benefit could be realized in the conversion of free time to work - hence the desire to replace the spare time with additional work. Accordingly leisure replaced by a set of goods and services that the employee can buy the increased wages. The above process is called the substitution effect.
Income effect - resists substitution effect. When problems are solved daily bread, so does our attitude to the free time, it seems less of wages, and the field is presented for the pleasure and joy, the more that high wages can enrich and diversify leisure. Therefore, it is logical emergence not only desire to buy more goods, but also to have more free time. This can be done only by reducing the supply of labor, free time is not bought for cash, but for the money that could be obtained in case of failure of leisure in favor of the extra work.