Part 5. What Everybody Ought to Know about Economics
Applying the ideas of supply and demand to the labor market.
In this series, I am using Economics, 3rd Edition by Professor Timothy Taylor, as a guide. I am providing the link so that you can take the course yourself. I found it quite enjoyable.
In Lecture 6, Professor Taylor applies the supply and demand curves to the labor market.
The general statements for supply and demand are: 1) As price goes up demand goes down. 2) As price goes up supply goes up.
I don’t think the average person thinks about supply and demand in terms of labor. Would you be willing to work more for more money?
In many cases, hourly workers must be paid overtime, 1.5 times what their usual wages are. When I was a teenager, I often worked long hours to make the extra money. However, some of the older men wanted to go home to their families. The extra money was not enough of an incentive. I bet if the wage was raised enough, they could have been enticed to work.
On the other hand, my employer would have liked to not pay me overtime. Think it through. If he pays me overtime, he makes less money. So, why would he do it? Although he made less money per order, he fulfilled more orders. He still made more money.
Many different labor markets exist. One of my sons is a research physicist. He is not in the same labor market as a cashier at the local grocery store. One way to define markets is by the skill set required.
Many of us think of unions as organizations that increase the price of labor for their members, by threatening or actually going out on strike. They could also be a way of improving communication between labor and management. Some unions also provide training. One of my sons is a general contractor. Early in his construction career, he was a member of the carpenters’ union. The union had classes to teach him how to increase his skill level and be more productive.
Minimum wage sets a price floor. There are societal tradeoffs. Is the increase in income for those hired better than the loss of income for those workers laid off? There are alternatives to minimum wage. Professor Taylor gave examples, “Examples of such policies include government training programs, subsidized hiring of low-skill workers, and tax credits for low-income workers.”
Workers can also demand that their employers take over some of their expenses. Examples include healthcare insurance, and social security. According to Professor Taylor, average total compensation was $23.29 per hour. Wages were only 71% of that or $16.64 per hour.
When you think about demand for labor, think about what employers really want - production. Increasingly, employers will shift from human labor to automation. As an example, my wife and I went to a restaurant in Merritt, B.C. last week. The server brought us a small bowl of sauce. The rest of the meal was brought by a robot.