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Instructions:  View instructions on the section padlet.

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Instructions:  View instructions on the section padlet.

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Team:  Students will do one chapter per section.  View your assigned padlet at this link.

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Team:  Students will do one chapter per section.  View your assigned padlet at this link.

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The Market for Haircuts and the Labor Market for Hair Stylists

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The Market for Haircuts and the Labor Market for Hair Stylists

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In most other markets, we think of businesses as suppliers and ordinary folks as the buyers. But in a labor market, the positions are swapped. As a worker, you're on the supply side, looking to sell your labor for the highest wages you can get. And businesses are in the demand side, looking to hire the best workers they can find at the lowest possible price.

The labor market is like any other market, except the units on the price and quantity axes are a bit different. The price of an hour of a professional's time is their hourly wage. And the quantities an employer buys are their hours of work.

An upward-sloping labor supply curve is just the law of supply, applied to the labor market. Similarly, the downward-sloping labor demand curve is just the law of demand, applied to the labor market. Wages and employment are determined by the intersection of the two curves.

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The extra production that occurs from hiring an extra worker. Recall that most businesses experience diminishing marginal product- meaning that at some point, hiring additional workers yields smaller and smaller increases in output

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Measures the marginal revenue from hiring an additional worker. The marginal revenue product is equal to the marginal product of labor multiplied by the price of that product. That is, the extra revenue produced by hiring an additional worker. A company's labor demand curve is the same as its marginal revenue product curve.

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Hire additional workers as long as their marginal revenue product is greater than or equal to the wage. That is, hire until wage = marginal revenue product

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The Marginal Revenue Product of Each Worker at Head Area Salon 

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The Marginal Revenue Product of Each Worker at Head Area Salon 

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These two forces collided to create the most unusual job market in living memory - and an economy afflicted not by too few jobs, but too few workers.

For those looking for employment or to change jobs,the 2021 economy has been a blessing, as companies hike wages andmany workers feel empowered to quit because they can swiftly find new opportunities. But the resultinglabor shortages are causing profound problems across a range of industries - from restaurants that can't find servers to factories that can't find people for the assembly line to hospitals that can't find nurses.

The shortages are beginning to raise difficult questions about how much some of America's most vital sectors can continue to rely on a relatively low-paid workforce.

In 2022, something's got to give. Otherwise, worker shortages could become an enduring feature - or defect - of the U.S. economy.

The economy has seldom seen such a mismatch between so much demand for workers and so few people willing to work.

The immediate economic hit from the coronavirus pandemic was unfathomable. In April 2020 alone, nearly 21 million jobs were lost. Despite improvements throughout last year, most economists thought that progress would come slowly in 2021, as anxious, badly burned businesses reluctantly hired.

Instead, it has been a nearly unprecedented recovery.

The unemployment rate, which stood at 4.2 percent in November, has recovered more rapidly than at all but one point since World War II, the relatively mild recession of 1960.

"2021 was a surprise, I think, to all economists," said Daniel Zhao, a senior economist at the employment website Glassdoor. "At the beginning of the year, we were concerned about whether we would get a strong enough recovery to get anywhere close to the labor market before the pandemic. And in some ways, we've passed that."

But the desire to hire is only half the story. The problem has been on the other side of the ledger - the number of Americans who are working or looking for work, also known as the labor force.

During the heavy layoffs of 2020, vast numbers of Americans left the labor force, a common pattern during an economic downturn. But usually, as the economy bounces back, people start looking for jobs again.

This time, it hasn't really happened. Since summer 2020, the labor force participation rate - the share of the population looking for jobs or employed - has hardly budged.

In total, there are still about 3.5 million fewer people employed than there were two years ago.But government statistics show that just over half that number of people - 1.8 million - have joined the ranks of Americans seeking a job.

The U.S. economic recovery from the covid pandemic was the strongest of any of the big Western economies. That is in large part thanks to the multiple rounds of government stimulus that totaled at least $5.2 trillion.

Many of these measures poured money directly into Americans' bank accounts.

Now largely forgotten $600 stimulus checks hit bank accounts as Americans welcomed the new year. And just as that boost began to run out, the $1,400 checks from President Biden's $1.9 trillion American Rescue Plan began to arrive, according to data from the JPMorgan Chase Institute. That was on top of a variety of other stimulus measures, including an expanded child tax credit for families and the extension of enhanced unemployment benefits.

TheBiden stimulus pushed the bank accounts of even the lowest-income Americans to unexpected heights. On average, they had more than twice as much in their savings accounts as they did when the pandemic began.

The twin fire hoses of cash - one from Congress, one from the Fed- sent Americans' spending roaring back.

The vast majority of that spending went to purchasing goods, from cleaning supplies and home appliances to hamburgers and milk. The service industry, such as hotels and restaurants, saw only a modest boost in spending.

But the spending surge put pressure on the entire labor market. Manufacturers, food processors and all the infrastructure that is involved in delivering goods to stores and people's homes, such as warehouses and truckers, suddenly had huge demand for workers. Service-sector companies, meanwhile, saw fierce new competition for labor.

Each month since May 2020, a special survey created by the Census Bureau, theHousehold Pulse Survey, has asked why people aren't looking for work.

Initially, the answer wasn't surprising. A large plurality of people cited layoffs and furloughs due to the pandemic. But as hiring recovered, other powerful forces emerged.

An unexpected surge in retirements, along with the continued threat of the coronavirus - which killed more Americans in 2021 than it did in 2020 -kept people from working.

"I think many economists and forecasters in 2021 continually predicted that, this month, people would suddenly explode back into the labor force, whether it's because of vaccines, or the summer, or schools reopening," Glassdoor's Zhao said."That just fundamentally has not happened."

Retirements explain a large chunk of the missing workers. For some, soaring retirement accounts and home values, combined with the lower expenses of a simplified work-from-home lifestyle, made it financially feasibleto retire early. Others retired solely on Social Security, without retirement accounts to ease the way.

Younger workers - those ages 16 to 24 at the start of the pandemic - have bolstered the ranks of willing workers. But that still isn't enough to balance out the number of older workers who have left.

Retirement isn't the only force in the worker shortage. The Pulse survey points to other reasons - child care, a simple desire not to work - but the most powerful after retirement is also the most mysterious: "other."

Nobody knows what "other" refers to, or how long it might endure. Some economists argue that the government benefits that helped fuel consumer spending also enabled more Americans to be pickier about when to return to work. Now that those benefits have ended, more Americans may seek out work.

But it will be hard to catch up. The pool of potential workers has shrunk so much that getting back to the number of people employed before the pandemic would require unprecedented success in connecting job seekers and employers.

Assuming more people don't start looking for work, it would require an unemployment rate of 2 percent, lower than at any point since measurement began in 1948.

The exodus of older workers, combined with the spiking demand for labor, has created a superlative market for job seekers. Those who do want to work have almost unprecedented opportunity, particularly in service industries that lost huge numbers of jobs at the start of the pandemic and are still trying to rebuild their workforce.

Workers are quitting their jobs at historically high rates in a phenomenon known as the Great Resignation - higher than any seen since December 2000, when the federal government began tracking quits. But most of those who quit already appear to have another job lined up.

This worker power has translated into the highest wage gains workers in nonmanagement positions have seen in almost four decades.

While many companies are passing those gains on to consumers in the form of higher prices, earnings growth for most workershas outpaced inflation over the past two years, according to a recent analysis by University of Massachusetts at Amherst economist Arindrajit Dube.

Across the economy, lower pay has tended to mean higher wage growth. Nonmanagerial workers in gas stations, the lowest-paid subsector, saw earnings rise 15.9 percent (to $14.58) since the pandemic began. That's far above the 10.2 percent increase seen by the average nonmanagerialworker over that time.

"The whole pandemic has really affected - especially - employees that were stuck in low-wage sectors: restaurants, the hospitality industry," said Bernard Baumohl, chief global economist at the Economic Outlook Group. "This group is no longer willing to tolerate those kinds of wages and those conditions that they experienced prior to the pandemic and during the pandemic, and they also realize they have a lot more leverage now and are moving out of those low-paying jobs with long hours."

The long-term effects of this upheaval on the workforce are yet to be seen.

Despite their newfound power in the job market, most workers who left low-paying jobs in restaurants and hotels ended up back in the same industry, according to a recent report from the California Policy Lab. Many of those who didn't ended up in other low-paying industries, such as retail.

"The fact that workers from the hardest hit sectors in the pandemic typically find jobs in those same sectors may be hindering the path to recovery, especially for low-wage workers," the report's authors write.

What has been a boon for workers has become a crisis for a growing number of industries that are facing severe shortages.

Job openings in industries such as restaurants, hotels and retail are at or near record highs. And some sectors, particularly retail and health care, have barely been able to hire enough people to balance out the number of workers leaving their jobs.

The struggle to hire and retain workers in the food and hospitality sector has dominated headlines since the summer. But in the background, a quieter struggle to staff nursing homes, day cares, schools and other industries has worn away at the foundations of America's social infrastructure.

The worker shortage is starkest in nursing homes and residential-care facilities, the only industry where employment has declined significantly since May 2020. Lower staffing can mean less attention given to residents and fewer open beds, leaving some patients to languish in hospitals that are already squeezed for space during the pandemic.

Similar challenges have afflicted child-care centers, which have hemorrhaged workers and often can't afford to increase wages as much as competing employers. Short-staffing in these centers and in public schools has the potential to ripple out through the economy as disruptions to child care cause parents to miss work or drop out of the labor force.

It's not clear who will fill these workforce holes. The pandemic exacerbated a demographic crunch long in the making. The population is growing more slowly than the economy, and productivity - how much workers can accomplish in any given time period, thanks to technology - isn't increasing fast enough to make up the difference.

Earlier this month, the Census Bureau estimated 0.1 percent population growth in the United States in 2021, the slowest rate on record. Other recently released census data indicated that immigration, long a top source of new workers, plunged to its lowest level in decades in 2021.

"If the labor force participation rate doesn't move and immigration doesn't recover, then we can't continue to grow at the pace we otherwise would," said Marianne Wanamaker, an economics professor at the University of Tennessee and a top economist in the White House during the Trump administration. "We can't automate fast enough to keep us on track."

For now, Americans will have to learn to live with too few workers in key aspects of their lives.

If 2021 was a stark reminder of how much the economy depends on low-wage labor, 2022 will be a test of how - and whether - employers and workers can find a new and better balance.

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The most unusual job market in modern American history, explained

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These two forces collided to create the most unusual job market in living memory - and an economy afflicted not by too few jobs, but too few workers. For those looking for employment or to change jobs,the 2021 economy has been a blessing, as companies hike wages andmany workers feel empowered to quit because they can swiftly find new opportunities.

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Measures the marginal revenue from hiring an additional worker.

MRP L = MP L x P
Marginal Revenue Product of Labor
= Marginal Product of Labor
x Price of Product

Labor Demand Curve = Marginal Revenue Product Curve

Labor demand curve downward sloping because of diminishing marginal product

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The demand for an input derives from the demand for the stuff the input produces.

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Scale and Substitution Effects on Labor Demand

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Scale and Substitution Effects on Labor Demand

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Scale Effect: When the price of capital goods (or any of your inputs) declines, your business can produce output more cheaply, so at any given price, you will sell a larger quantity. That is, you'll produce ate a larger scale, which may require more workers, increasing your business's labor demand.

Substitution Effect: There are many tasks that can be done by either workers or machines. And so when the price of these machines falls, the demand for workers to do tasks that can be substituted for machines decreases.

Both effects shift labor demand. Which force dominates determines whether labor and capital are complements or substitutes. If the scale effect dominates then labor and capital are complements, so a decrease in the price of capital will lead to a rightward shift of labor demand. If the substitution effect dominates then labor and capital are substitutes, so a decrease in the price of capital will lead to a leftward shift of labor demand.

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The Market Labor Demand Curve shifts due to:

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The Market Labor Demand Curve shifts due to:

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1. Changes in demand for a product
2. Changes in the price of capital
3. Better management techniques and productivity gains
4. Nonwage benefits, subsidies, and taxes

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The time you spend working in the market. Market labor supply depends on: 1) how many people decide to work, 2) how many hours existing workers put in, and 3) which occupations people choose.

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Work one more hour as long as the wage is at least as large as the marginal benefit of another hour of leisure. Just as labor demand is all about marginal revenue product, labor supply is all about the marginal benefit of leisure.

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Substitution and Income Effects on Labor Supply 

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Substitution and Income Effects on Labor Supply 

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Substitution Effect: Measures how people respond to a change in relative prices. A higher wage increases the returns to work relative to leisure, leading you to work more. That is, a higher wage raises the marginal benefit of working another hour. This effect leads to an upward sloping individual labor supply curve.

Income Effect: Measures how people's choices change when they have more income. A higher wage increases your income, leading you to choose more leisure and hence less work. That is, the marginal benefit of an hour of leisure increases as wages do. The income effect provides a reason for workers to cut their hours in response to a wage rise. This effect leads to a downward-sloping individual labor supply curve.

If these effects exactly offset each other, then your individual labor supply curve is vertical. People may have very differently shaped individual labor supply curves, depending on how they value money versus leisure

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Creating Your Own Individual Supply Curve 

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Creating Your Own Individual Supply Curve 

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Intensive and Extensive Margins of Labor Supply 

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Intensive and Extensive Margins of Labor Supply 

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Intensive Margin: describes the number of hours each worker supplies- a measure of how intensively existing workers supply their labor

Extensive Margin: describes the number of people in the workforce- a measure of the extent of work

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The Market Labor Supply Curve shifts due to: 

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The Market Labor Supply Curve shifts due to: 

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1. Changing wages in other occupations
2. Changing number of potential workers
3. Changing benefits of not working
4. Nonwage benefits, employment subsidies, and income taxes

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Economists Pin More Blame on Tech for Rising Inequality (Published 2022)

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Recent research underlines the central role that automation has played in widening disparities.

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Three-Step Recipe for Forecasting the Effects of Changing Market Conditions 

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Three-Step Recipe for Forecasting the Effects of Changing Market Conditions 

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1: is it the labor supply curve, the labor demand curve, or both curves shifting?

2: is the shift an increase or a decrease?

3: how will wages and the number of jobs change in the new equilibrium?

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The chapter labor markets talks about how to make good decisions both as an employer and as a worker and understand how wages are determined. Labor demand decisions and labor supply. Together, these forces provide a powerful framework for identifying where your best opportunities will lie, empowering you to make good decisions when you’re launching your career, adapting to changes in the labor market, or starting your own successful company.

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Work one more hour as long as the wage is at least as large as the marginal benefit of another hour of leisure.

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Measures how people respond to a change in relative prices. A higher wage increases the returns to work relative to leisure, leading you to work more.

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Measures how people’s choices change when they have more income. A higher wage increases your income, leading you to choose more leisure and hence less work.

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https://www.youtube.com/watch?v=H894hRwJ1PE

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https://www.morningstar.com/articles/1082594/economic-outlook-labor-market-to-drive-gdp-growth

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While U.S. economic growth will continue its post-pandemic recovery through the rest of this year even as interest rates increase, Russia's war with Ukraine is a risk going forward and may fuel a further rise in inflation.

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Economic Outlook: Labor Market to Drive GDP Growth

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While U.S. economic growth will continue its post-pandemic recovery through the rest of this year even as interest rates increase, Russia's war with Ukraine is a risk going forward and may fuel a further rise in inflation.

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5.2 Perfectly Competitive Labor Market and Firm: Econ Concepts in 60 Seconds- Advanced Placement

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Mr. Clifford's 60 second explanation of how to draw a perfectly competitive labor market and firm hiring workers. Notice that the perfectly elastic (horizontal) curve is now supply. Please keep in mind that these clips are not designed to teach you the key concepts.

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is the most effective conclusion for society as a whole, taking into consideration all costs and benefits, whether they accrue to buyers, sellers, or bystanders. This entails determining the quantity of a good will result in the greatest potential economic surplus.

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https://www.axios.com/new-jersey-gas-station-pump-economy-labor-0fb42fdf-3f5f-4b1d-a473-99963a8849be.html

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New Jersey might let drivers pump their own gas — thank the labor market

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It will show a different way tight labor markets can generate productivity gains — through political action.

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The labor market is just like any other market. When firms are looking for workers, they are demanding labor. When workers look for jobs, they are the suppliers of labor. The price that is exchanged between the sellers and the buyers are the wage.

The upward slope of the supply curve of the labor market is exactly like the law of supply: suppliers are likely to provide more labor when the price is higher (i.e. working longer hours). The downward slope of the demand curve is just like the law of demand: there will be more quantity demanded at a lower price(firms not wanting to hire more workers), and vice versa when the price is higher. The equilibrium is the price that workers (suppliers) are willing to sell, and how much the buyers (firms) are willing to pay.

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This is how to apply the core principles to see if you need to hire more workers:

1. Marginal Principle: a "how many" question; break it down and ask if you need to hire one more worker. If the answer is no, then stop. If the answer is yes, then ask "SHOULD I hire one more worker?"
2. Cost-benefit principle: hire one more worker if the marginal benefit of the extra worker is greater than or equal to the marginal cost that incurred.
3. Opportunity cost: this is to understand the marginal cost and marginal benefit by asking "or what?" employer can either hire this extra worker, OR keep the production at this level. You can compare the marginal benefit to this threshold.

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https://study.com/academy/lesson/understanding-shifts-in-labor-supply-and-labor-demand.html

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In Robots and Jobs: Evidence from U.S. Labor Markets (NBER Working Paper 23285), Daron Acemoglu and Pascual Restrepo find that deployment of robots reduces employment and wages, but they caution that it is difficult to measure net labor market effects.

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This is how to analyze the choice of taking one extra hour to work using the core principles:

1. Opportunity cost: you forgo other leisure activities if you choose to work one more hour. Is there something else that you would rather do/have to do?
2. Marginal Principle: "should I work one more hour?" is the question that you should ask, and then determine if a bigger paycheck/more promotions is worth pursuing this extra time working.
3. Cost-benefit principle: the benefit is the extra money, the cost is the leisure time that you could have had. This principle is also the Rational Rule for Workers: work an extra hour if the wage equals to the marginal benefit of an hour of leisure time.

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This section explains the concept of supply and demand in the market, and how businesses are on the demand side for workers, and the workers are on the supply side for their labor. The section also explains in detail how both businesses and workers will use the 4 Core Principles of Economics to make decisions on who to hire and who to work for. By doing so, both sides can find the wage and employment that suites there needs.

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This section begins by explaining the Rational Rule for Employers and then explains how a business can apply this rule to determine how many workers can be hired so wage equals marginal revenue product. Then, the four shifters that effect the labor demand are: demand in product, price of capital, better management and productivity gains, and nonwage benefits, subsides, and taxes. Each of these will shift the demand curve of a business. Then, the books explains how robots and minimum wage are connected, and how the interdependence principle has an effect of future jobs in the robotics field.

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This section explains the idea of leisure time compared to labor supply, which is time working in the market. By using the 4 Core Principles of Economics, one can evaluate how working more hours would affect them. The Rational Rule for Workers determines if working 1 more hour has the same marginal benefit of 1 hour of leisure time. By using this, one can understand how substitution and income effect will change an individuals supply curve. The book then explains how using the labor supply curve can shift, with the four factors being: changing wages in other occupations, number of potential workers, benefits of not working, and nonwage benefits, subsides, and income tax.

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This section explains the steps to analyze if a shift is labor demand or labor supply. By using the three step method, one can determine shat curve is being effected. The three steps are:
Is the supply or demand curve shifting?
Is that shift an increase or decrease?
How will wages and job numbers change at new equilibrium?