[经济学]SEM2Weeks2and3lectureslides.ppt

,Theory of Income Distribution Semester 2-Weeks 2 and 3 (Sloman and Wride-Chapter 9),Theory of the Distribution of Income,Wages under Perfect Competition,Wages under perfect competition,Perfect labour markets assumptions no market power, everyone is a wage taker freedom of entry and exit perfect knowledge homogeneous labour market determination of wage rate,O,Labour hours,Hourly wage,Wm,A labour market: whole market,O,Labour hours,Hourly wage,Q1,Wm,Slabour,A labour market: individual employer,Firms are wage takers and thus face an infinitely elastic supply of labour.,O,Labour hours,Hourly wage,Q2,Wm,Dlabour,A labour market: individual worker,Workers are wage takers and thus face an infinitely elastic demand for labour.,Wages under perfect competition,The supply of labour supply of hours by an individual worker marginal disutility of work,O,Hours worked,Disutility,The marginal disutility of hours worked,O,Hours worked,Hourly wage,S,The supply of hours worked,Wages under perfect competition,The supply of labour supply of hours by an individual worker,income and substitution effects of wage changes shape of the individuals supply curve of labour,Daily hours of leisure,Daily income,150,120,60,40,O,Assume 12 hours available to be divided between work and leisure,12,The choice of hours worked at different wage rates,Daily hours of leisure,Daily income,150,120,60,40,O,4,x,B1,I1,12,Higher wage rate (10) causes the person to work one more hour. Substitution effect outweighs income effect.,The choice of hours worked at different wage rates,Daily hours of leisure,Daily income,150,120,60,40,O,3,4,x,B1,B2,I2,I1,y,12,Higher wage rate (12.50) causes the person to work less. Income effect outweighs substitution effect. This gives backward-bending supply curve of labour.,The choice of hours worked at different wage rates,Hourly wage,Hours,O,Above w1 the income effect of a higher wage rate is greater than the substitution effect.,Backward-bending supply curve of labour,Wages under perfect competition,The supply of labour market supply of a given type of labour,The number of qualified people. The wage rate. Non-wage benefits in the job. The pleasantness/unpleasantness of the job. The wages and non-wage benefits of alternative jobs.,The market supply curve of labour tends to be upward sloping. The position of this curve depends on all except ONE of the following determinants. Which one?,Q,Wages under perfect competition,Elasticity of supply Depends on: Difficulties and costs of changing jobs Time period the mobility of labour geographical mobility occupational mobility,Wages under perfect competition,The demand for labour: marginal productivity theory marginal revenue product of labour: MRPL = MPPL x MR How many workers will a profit maximising firm want to employ?,O,Q of labour,Output,x,Marginal physical product of labour curve,Diminishing returns set in here,O,Qe,Q of labour,The profit-maximising level of employment,MRPL = MPPL Pgood,Wages under perfect competition,The demand for labour: marginal productivity theory marginal revenue product of labour (MRPL ) derivation of a firms demand curve for labour,O,Q of labour,W1,MCL1,Q1,MCL2,W2,MCL3,W3,Q2,Q3,Deriving the firms demand curve for labour,Profits maximised where MRPL = MCL,At a wage rate of W2, Q2 workers will be demanded. Thus point b is another point on the demand curve.,At a wage rate of W1, Q1 workers will be demanded. Thus point a is one point on the demand curve.,At a wage rate of W3, Q3 workers will be demanded. Thus point c is another point on the demand curve.,D,O,Q of labour,Q1,Q2,Q3,Deriving the firms demand curve for labour,The MRPL curve traces out the demand curve,Wages under perfect competition,The demand for labour: marginal productivity theory marginal revenue product of labour (MRPL ) derivation of a firms demand curve for labour derivation of the industry demand curve for labour,O,Q of labour,W1,MCL1,MRP1,Using the firms demand curves for labour to derive the industry demand curves for labour,O,Q of labour,W1,MCL1,MCL2,W2,MRP1,a,A fall in the wage rate will increase industry output and hence push down the price. This will shift the MRP curve inwards.,Using the firms demand curves for labour to derive the industry demand curves for labour,O,Q of labour,W1,MCL1,MCL2,W2,MRP1,a,The industry demand for labour is the horizontal sum of the green lines (connecting points a and c),Using the firms demand curves for labour to derive the industry demand curves for labour,Wages under perfect competition,Wages and profits under perfect competition MRP slopes down, thus last worker adds less to revenue than previously employed workers if all workers are paid the MRP of the last worker , there is a surplus for the firm over its wage bill, contributing to profits,O,MCL = W,W,Qe,Q of labour,Wages and profits,Profit maximised at employment of Qe,O,MCL = W,Surplus for firm,Wages,W,Qe,Q of labour,Wages and profits,Wages under perfect competition,Equality and inequality of wages under perfect competition equality will exist when: workers have identical abilities there is perfect knowledge there is perfect mobility of labour all jobs are equally attractive to all workers wages determined entirely by demand and supply,Wages under perfect competition,In practice, inequality of wages between markets will persist under perfect competition jobs are not identical workers abilities are not identical workers are not perfectly mobile Factors that contribute to poverty under perfect competition include lack of skills that increase productivity participation in labour markets with high level of supply/ low demand working in contracting industries,Theory of the Distribution of Income,Wage Determination in Imperfect Markets,Wages in imperfect markets,Firms with monopsony power in employing labour MCL W effects on wages and employment,O,Q of labour,MRPL,ACL W (supply curve),MCL,Monopsony,W1,Q2,W2,Wages in imperfect markets,Other labour market imperfections Imperfect information Persistent disequilibrium Non-maximising behaviour Discrimination,Wages in imperfect markets,Gender inequality of earnings,Average gross hourly earnings for full-time adult UK employees ( per hour): 1970-2008,Average gross hourly earnings for full-time UK employees on adult rates (2007),Wages in imperfect markets,Conclusions: who are the rich and who are the poor? Factors that contribute to poverty in imperfect labour markets lack of economic power, not belonging to a strong union ignorance of better job opportunities lack of will or ability to search for a better job discrimination,Theory of the Distribution of Income,Capital,Capital,Factor prices versus the price of factor services factor prices and factor rental rates Profit-maximising employment of capital,Capital,Profit maximising employment of capital (similarly for land) marginal cost of capital (MCK) marginal revenue product of capital (MRPK) profit maximising in perfect capital markets,O,Q of factor,MRPf,Qf1,Pf1,Perfectly competitive factor market,Capital,Capital services the demand for capital services the supply of capital services determination of the price of capital services,O,Qe,Rental rate (),Quantity per period,Rental rate determined by the market,Long-run equilibrium rental rate in the