Skip to main content

Wage determination

Wage determination 

As you can see above, wages are determined in an industry as prices are - by taking where the supply and demand curve meet, the point of equilibrium. The area below We and to the left of the supply curve is the area of labour surplus. The area above We and to the left of the demand curve is the employer surplus. 

 Labour surplus is the workers that would have been willing to work at a lower wage than We so are benefitting. It is the difference between the wage workers would have been willing to accept and what they are actually accepting. 
NB: this is NOT the same as surplus labour. 

Employer surplus is the difference between what firms are willing to pay workers and what they actually are paying. It is the firms that would have been willing to pay workers a higher wage than We.

 The firms that are to the right of Qe are those who are not working because they have some substitute worth more than We - they are the voluntary unemployed. In a free market, everyone willing to work is employed, so hypothetically there is not involuntary unemployment. 
Labels:

Comments

Post a Comment

Popular posts from this blog

Business Growth

Why do businesses grow?  Profit motive Businesses grow to make more profit by increasing revenue. Selling more to more people often means profits increase.  The valuation of a company's share is often influenced by how it is expected to do in the future (ie how much profit it is likely to make). When it is projected to do well, share prices increase, and it is valued more highly on the stock market. This provides incentive for companies to increase profits, doing well on the stock market increases investment and raises more money.  Cost motive - economies of scale When firms are larger, relative costs are smaller. This is because some costs are fixed, so if you are a larger company, producing larger output, the cost per unit will decrease.  e.g. If a T-shirt factory's main cost is the £10,000 to rent to factory each month, and it produces only 1000 shirts a month, each shirt costs £10 to make. But if it scales up and produces 100,000 shirts a month, ...
Post a Comment
Read more

Income elasticity of demand (YED)

    Income elasticity of demand (YED)         % D QD/% D Y             Income elasticity of demand (YED): the responsiveness of the quantity demanded of a good to changes in consumer income. YED allows us to work out which goods are inferior, luxury and normal. When YED > 1 or <-1, demand is elastic. When YED is between -1 and 1, demand is inelastic. When YED < 0, goods/services are inferior. This means as income rises, demand for these goods decreases. (e.g. bus tickets) They vary inversely with income. When YED < -1, goods are very inferior (e.g. own-brand labels, cheap cuts of meat). When YED = 0, demand for the good is independent of income. When YED > 0, goods/services are normal. Demand for these goods vary directly with income, and the state of the economy. When YED is between 0 and 1, goods/services are necessary. When income increases, demand for these goods go up a proportional...
Post a Comment
Read more

The Philips curve

The Philips curve  The Philips curve suggests a tradeoff between unemployment and inflation - to decrease unemployment, inflation has to rise. This creates a conflict between two macroeconomic objectives - targeting inflation at 2% (in the UK) and decreasing unemployment. 
Post a Comment
Read more