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By the end of this section, you will be able to:

  • Predict shifts in the demand and supply curves of the labor market
  • Explain the impact of new technology on the demand and supply curves of the labor market
  • Explain price floors in the labor market such as minimum wage or a living wage

Markets for labor have demand and supply curves, just like markets for goods. The law of demand applies in labor markets this way: A higher salary or wage —that is, a higher price in the labor market—leads to a decrease in the quantity of labor demanded by employers, while a lower salary or wage leads to an increase in the quantity of labor demanded. The law of supply functions in labor markets, too: A higher price for labor leads to a higher quantity of labor supplied; a lower price leads to a lower quantity supplied.

Equilibrium in the labor market

In 2013, about 34,000 registered nurses worked in the Minneapolis-St. Paul-Bloomington, Minnesota-Wisconsin metropolitan area, according to the BLS. They worked for a variety of employers: hospitals, doctors’ offices, schools, health clinics, and nursing homes. [link] illustrates how demand and supply determine equilibrium in this labor market. The demand and supply schedules in [link] list the quantity supplied and quantity demanded of nurses at different salaries.

Labor market example: demand and supply for nurses in minneapolis-st. paul-bloomington

This graph shows how equilibrium is affected by demand and supply. The downward- sloping demand curve and the upward-sloping supply curve intersect at equilibrium salary.
The demand curve (D) of those employers who want to hire nurses intersects with the supply curve (S) of those who are qualified and willing to work as nurses at the equilibrium point (E). The equilibrium salary is $70,000 and the equilibrium quantity is 34,000 nurses. At an above-equilibrium salary of $75,000, quantity supplied increases to 38,000, but the quantity of nurses demanded at the higher pay declines to 33,000. At this above-equilibrium salary, an excess supply or surplus of nurses would exist. At a below-equilibrium salary of $60,000, quantity supplied declines to 27,000, while the quantity demanded at the lower wage increases to 40,000 nurses. At this below-equilibrium salary, excess demand or a surplus exists.
Demand and supply of nurses in minneapolis-st. paul-bloomington
Annual Salary Quantity Demanded Quantity Supplied
$55,000 45,000 20,000
$60,000 40,000 27,000
$65,000 37,000 31,000
$70,000 34,000 34,000
$75,000 33,000 38,000
$80,000 32,000 41,000

The horizontal axis shows the quantity of nurses hired. In this example, labor is measured by number of workers, but another common way to measure the quantity of labor is by the number of hours worked. The vertical axis shows the price for nurses’ labor—that is, how much they are paid. In the real world, this “price” would be total labor compensation: salary plus benefits. It is not obvious, but benefits are a significant part (as high as 30 percent) of labor compensation. In this example, the price of labor is measured by salary on an annual basis, although in other cases the price of labor could be measured by monthly or weekly pay, or even the wage paid per hour. As the salary for nurses rises, the quantity demanded will fall. Some hospitals and nursing homes may cut back on the number of nurses they hire, or they may lay off some of their existing nurses, rather than pay them higher salaries. Employers who face higher nurses’ salaries may also try to replace some nursing functions by investing in physical equipment, like computer monitoring and diagnostic systems to monitor patients, or by using lower-paid health care aides to reduce the number of nurses they need.

Questions & Answers

what is taxation
K.visor Reply
levy paid by eligible individuals and companies to the government
Kingt
tax
Raji
A means by which governments finance their expenditure by imposing charges on citizens and corporate entities. Governments use taxation to encourage or discourage certain economic decisions.
Raji
a source of economic revenue in which working citizens pay levy which varies from one individual to the other.
Vanessa
monies paid by residents of a country to the government in which the residents benefit indirectly
Kotey
it's the government, looking for funding to create public goods and services so that everyone can be happy.
Sinethemba
what is taxation?
jacob Reply
In simple term. Taxation can be defined as compulsory payment levy on company or individual by the government. It can be direct or indirect.
salawu
what is capital
K.visor
disadvantage of money
Bigdreamz Reply
Please any Ghanaian schooling at KNUST?
Prince Reply
combining factors of production is the role of
Richard Reply
the situation in economic where by a more valuable good is sold at a low price while less valuable good is sold at a higher price .how can we describe this situation in economic
Fung
price discrimination
Fayaz
deman and supply
Samim
price discrimination
Citizen
enterlrenure
Fayaz
causes of high elasticity of demand
Onyango Reply
causes of high elasticity of supply
Onyango
what is optimazation
lepekola
what is trade offs
lepekola
A trade-off  is a situational decision that involves diminishing one quality, or property of a design in return for gains in other aspects.
Addin
what is indifference curve ?
abdullah
its represnted by the loops of points and gives same level of satisfaction
hisham
what is enterpreneurship
Kukoyi
Entrepreneurship is the talent, knowledge and willingness individual has to engage in an activity that can result in new kind of firm
Addin
what is the short run industry supply curves?
james
I think there' s a mistake. P = - 0.4 + 0.2Qs is the supply curve and not the demand curve. Am I correct?
Valeria Reply
Qs is quantity supplied
The
This is what I think
The
this eaquation is supply curve Qs=P-0.4 the relationship is positive when the price increase the Qs increase....
mukhtaar
since Qs is quantity supplied P= -0.4 + 0.2Qs =>P +0.4=0.2Qs =>P/0.2 + 0.4=Qs I made Qs the subject of the formula or equation. So your answer is correct
The
P = -0.4 + 0.2Qs is the same as P/0.2+0.4=Qs Price has a direct relationship with the quantity supplied i.e the higher the price the higher the quantity supplied. that is why it is +0.4(this is the quantity and it is postive) and P/O.2(is the price and it is positive).
The
For the demand equation let me give an example 0.2P-0.4=Qd. Here the P is postive(+0.2) and the quantity which is -O.4 is negative( because of the negative sign(-) there is an inverse relationship between price and quantity. For quantity demanded the higher the price the lower the quantuty.
The
It's how I understand it
The
0.2P-0.4=Qd. the equation is wrong because the price have direct ralationship Quantity demanded but the correct equation is-0.2P -0.4=Qd so the higher price the lower Quantity
mukhtaar
I think the relationship is inverse because of the negative sign(-)
The
ok You mean the price and quantity demanded should be negative(inverse relationship) for Qd and the price and quantity supplied should be postive(direct relationship) for Qs
The
thank you for the correction
The
yes because it got a positive gradient of +0.2
Michael
This is the mistake I found: "Since P is on the vertical axis, it is easiest if you solve each equation for P. The demand curve is then P = 8 – 0.5Qd and the demand curve is P = –0.4 + 0.2Qs. Note that the vertical intercepts are 8 and –0.4, and the slopes are –0.5 for demand and 0.2 for supply."
Valeria
dear price do not depend on quantity. rather quantity depends on price. so the equation should be Qty=0.2Px-0.4
Michael
please can someone generate supply equation for me
David Reply
ok
Detto
Qs=f(P,Pr,G,E,Z,Pf,)
The
where p is price, Pr is price of related goods, G is goals of a firm E is supplier's future expectation of prices,Z is other related factors, Pf is cost of factors of production.
The
I think it's wrong
The
if Qd=90-p Qs=90+p
The
the coefficient of price must be positive since supply curve is positively slopping
Kotey
yes
The
it's true. thank you
The
welcome
Kotey
ok
The
OK, thank you
David
no one can do that, you must determine the the key factors for the commodity, like price, income, prices of alternative commodity, and other factors, if you want the main equation, you must have 4 values, 2 values for each quantity and price, for one commodity
Chief
diagram of perfectly inelastic
Muhd Reply
this platform is okay
K.visor
chi-square test is used to test A. Analysis of variance B. Association between the qualitative variables C. Difference between means of two distribution drawn from the same population D. Difference between the means of two distribution drawn from different population
Syk Reply
the Answer Should Be D
Amanuel
Confirm?
Syk
A
Satyanarayana
The answers is D
Lawrence
Thank you
Syk
What is economic?
bilya
is the system that study the difference between resources and the growth population
Messi
Economics studies humanbehaviour as a relation between ends and scarce means which have alternative uses
Kotey
rigth .....but economic has different concepts
Messi
yes
Kotey
what is equilibrium
Obed Reply
it is that point where price is equal to output or rather a point where demand is equal to supply
Fung
it is a point where consumer get maximum satisfaction and producers maximise profit or minimise loss
Imtiyaz
thanks
Obed
supply equal demand in one point
Messi
it's a point where supply and demand meets/equal whether profit or loss
deany
how to compute budget constraint
Kristine Reply
how to calculate balance of payment deficit
Fung
How to calculate National income
Obed
what is indifference curves
abdullah
what,how and for whom to produce
kunle Reply
those are problem that producer face in the process of production due to scarcity
Richman
gm
Diodo
a particular selected product is produced in a systematic hygiene condition and is produced for the customers.
Madhu
what are the factors of economic growth?
Povuuro Reply
tax, imports and exports, etc
deany
Explain the paradox of poverty in the midst of plenty?
moses Reply

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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