经济学英文教学课件：KW2-Ch20 Factor Markets and Distribution of Income

chapter:

20>>©2009WorthPublishersFactorMarketsandDistributionofIncomeHowfactorsofproduction—resourceslikeland,labor,andbothphysicalandhumancapital—aretradedinfactormarkets,determiningthefactordistributionofincomeHowthedemandforfactorsleadstothemarginalproductivitytheoryofincomedistributionAnunderstandingofthesourcesofwagedisparitiesandtheroleofdiscriminationThewayinwhichaworker’sdecisionabouttimeallocationgivesrisetolaborsupplyAfactorofproductionisanyresourcethatisusedbyfirmstoproducegoodsandservices,

itemsthatareconsumedbyhouseholds.Factorsofproductionareboughtandsoldinfactormarkets,

andthepricesinfactormarketsareknownasfactorprices.Whatarethesefactorsofproduction,andwhydofactorpricesmatter?TheEconomy’sFactorsofProductionEconomistsdividefactorsofproductionintofourprincipalclasses:Land:aresourceprovidedbynatureLabor:theworkdonebyhumanbeingsPhysicalcapital:whichconsistsofmanufacturedresourcessuchasbuildings,equipment,toolsandmachinesHumancapital:theimprovementinlaborcreatedbyeducationandknowledgethatisembodiedintheworkforceTheFactorsofProductionWhatisaFactor,Anyway?Imagineabusinessthatproducesshirts.Thebusinesswillmakeuseofworkersandmachines—thatis,oflaborandcapital.Butitwillalsouseotherinputs,suchaselectricityandcloth.Arealloftheseinputsfactorsofproduction?No:Laborandcapitalarefactorsofproduction,butclothandelectricityarenot.Thekeydistinctionisthatafactorofproductionearnsincomefromthesellingofitsservicesoverandoveragainbutinputcannot.Aworkerandamachineearnincomeovertime,butinputlikeelectricityorclothareusedupintheproductionprocess.Onceexhausted,theycannotbeasourceoffutureincomefortheowner.Factorpricesplayakeyroleintheallocationofresourcesamongproducersduetotwofeaturesthatmakethesemarketsspecial:Demandforthefactor,whichisderivedfromthefirm’soutputchoiceFactormarketsarewheremostofusgetthelargestsharesofourincomeTheAllocationofResourcesThefactordistributionofincomeisthedivisionoftotalincomeamonglabor,land,andcapital.Factorprices,whicharesetinfactormarkets,determinethefactordistributionofincome.Laborreceivesthebulk—morethan70percent—oftheincomeinthemodernU.S.economy.Althoughtheexactshareisnotdirectlymeasurable,muchofwhatiscalledcompensationofemployeesisareturntohumancapital.FactorIncomesandtheDistributionofIncomeTheFactorDistributionofIncomeandSocialChangeintheIndustrialRevolutionNovelsbyJaneAustenandCharlesDickensseemtobedescribingquitedifferentsocieties.Austen’snovels,setaround1800,describesaworldinwhichtheleadersofsocietyareland-owningaristocrats.Dickens’novelsdescribeaworldinwhichbusinessmen,especiallyfactoryowners,areincontrol.Thisshiftreflectsadramatictransformationinthefactordistributionofincome.TheIndustrialRevolution,whichtookplacebetweenthelateeighteenthandthemid-nineteenthcenturies,changedEnglandfromamainlyagriculturalcountrytoanurbanizedandindustrialone.Theshareofnationalincomefromlandfellfrom20%to9%,butthatfromcapitalrosefrom35%to44%duringthesametimeperiod.TheFactorDistributionofIncomeintheUnitedStatesIntheUnitedStates,paymentstolaboraccountformostoftheeconomy’stotalincome.In2007,compensationofemployeesaccountedformostincomeearnedintheUnitedStates—about70%ofthetotal.Mostoftheremainder—consistingofearningspaidintheformofinterest,corporateprofits,andrent—wenttoownersofphysicalcapital.Finally,proprietors’income—9.3%ofthetotal—wenttoindividualownersofbusinessesascompensationforthelaborandcapitalexpendedintheirbusinesses.TheFactorDistributionofIncomeintheUnitedStatesWhatwecallcompensationofemployeesisreallyareturnonhumancapital.Asurgeonisn’tjustapplyingtheservicesofapairofordinaryhands.Heisalsosupplyingtheresultofmanyyearsandthousandsofdollarsinvestedintrainingandexperience.Economistsbelievethathumancapitalhasbecomethemostimportantfactorofproductioninmoderneconomies.FactorDistributionofIncomeinU.S.in2007Interest5.4%Rent0.6%Corporateprofits14.3%Proprietors’income9.3%Compensationofemployees70.4%Alleconomicdecisionsareaboutcomparingcostsandbenefits.Foraproducer,itcouldbedecidingwhethertohireanadditionalworker.

Butwhatisthemarginalbenefitofthatworker?

Wewillusetheproductionfunction,

whichrelatesinputstooutputtoanswerthatquestion.

Wewillassumethroughoutthischapterthatallproducersareprice-takers—theyoperateinaperfectlycompetitiveindustry.MarginalProductivityandFactorDemandMPL7865432101917151311975Marginalproductoflabor(bushelsperworker)78654321010080604020Quantityofwheat(bushels)(a)TotalProduct(b)MarginalProductofLaborTPQuantityoflabor(workers)TheProductionFunctionforGeorgeandMartha’sFarmQuantityoflabor(workers)WhatisGeorgeandMartha’soptimalnumberofworkers?Thatis,howmanyworkersshouldtheyemploytomaximizeprofit?Asweknowfromearlierchapters,aprice-takingfirm’sprofitismaximizedbyproducingthequantityofoutputatwhichthemarginalcostofthelastunitproducedisequaltothemarketprice.

Oncewedeterminetheoptimalquantityofoutput,wecangobacktotheproductionfunctionandfindtheoptimalnumberofworkers.

Thereisalsoanalternativeapproachbasedonthevalueofthemarginalproduct…ValueoftheMarginalProductThevalueofthemarginalproductofafactoristheextravalueofoutputgeneratedbyemployingonemoreunitofthatfactor.Valueofthemarginalproductoflabor=VMPL=P×MPLThegeneralruleisthataprofit-maximizing,price-takingproduceremployseachfactorofproductionuptothepointatwhichthevalueofthemarginalproductofthelastunitofthefactoremployedisequaltothatfactor’sprice.ValueoftheMarginalProductTomaximizeprofit,GeorgeandMarthawillemployworkersuptothepointatwhich,forthelastworkeremployed,VMPL=W.ValueoftheMarginalProductTheValueoftheMarginalProductCurveThevalueofthemarginalproductcurveofafactorshowshowthevalueofthemarginalproductofthatfactordependsonthequantityofthefactoremployed.TheValueoftheMarginalProductCurve

ValueofthemarginalproductvaluecurveVMPLA012348765$400300200100Wagerate,VMPLProfit-maximizingnumberofworkersOptimalpointMarketwagerateQuantityoflabor(workers)Whatcausesfactordemandcurvestoshift?Therearethreemaincauses:ChangesinpricesofgoodsChangesinsupplyofotherfactorsChangesintechnologyShiftsoftheFactorDemandCurveShiftsoftheValueoftheMarginalProductCurveAB2085$200VMPL1VMPL2AC05$200VMPL3VMPL1(a)AnIncreaseinthePriceofWheat(b)ADecreaseinthePriceofWheatQuantityoflabor(workers)Quantityoflabor(workers)WagerateWagerateMarketwagerateWehavelearnedthatwhenthemarketsforgoodsandservicesandthefactormarketsareperfectlycompetitive,factorsofproductionwillbeemployeduptothepointatwhichthevalueofthemarginalproductisequaltotheirprice.Whatdoesthissayaboutthefactordistributionofincome?TheMarginalProductivityTheoryofIncomeDistributionGettingMarginalProductivityRightThemostcommonsourceoferroristoforgetthattherelevantvalueofthemarginalproductistheequilibriumvalue,notthevalueofthemarginalproductsyoucalculateonthewaytoequilibrium.It’simportanttobecarefulaboutwhatthemarginalproductivitytheoryofincomedistributionsays:allunitsofafactorgetpaidthefactor’sequilibriumvalueofthemarginalproduct—theadditionalvalueproducedbythelastunitofthefactoremployed.HelpWanted!Thehighly-skilledseniormechanistsofHamillManufacturingarewell-paidcomparedtootherworkersinmanufacturing.Doesn’tthemarginalproductivitytheoryofincomedistributionimplythatthemachinistsshouldbepaidtherevenuetheygenerate?No.Thetheorysaysthattheywillbepaidthevalueofthemarginalproductofthelastmachinisthiredandduetodiminishingreturnsoflabor,thatvaluewillbelowerthantheoverallaverage.Secondly,aworker’sequilibriumwagerateincludesotherbenefitssuchasjobsecurity,trainingnewhires,etc.,sointheend,itdoesappearthatthemarginalproductivitytheoryofincomedistributiondoeshold.AllProducersFacetheSameWageRate50$200WagerateMarketwagerate7$200VMPLwheatVMPLcornVMPLwheat=PxMPLVMPLcorn=PcornxMPLcorn(a)FarmerJones(b)FarmerSmithProfit-maximizingnumberofworkersFarmerSmith’sFarmerJones'swheatwheatWagerateQuantityoflabor(workers)Quantityoflabor(workers)Profit-maximizingnumberofworkersEachfirmwillhirelaboruptothepointatwhichthevalueofthemarginalproductoflaborisequaltotheequilibriumwagerate.Thismeansthat,inequilibrium,themarginalproductoflaborwillbethesameforallemployers.Sotheequilibrium(ormarket)wagerateisequaltotheequilibriumvalueofthemarginalproductoflabor—theadditionalvalueproducedbythelastunitoflaboremployedinthelabormarketasawhole.EquilibriumintheLaborMarketItdoesn’tmatterwherethatadditionalunitisemployed,sincethevalueofthemarginalproductoflabor(VMPL)isthesameforallproducers.Accordingtothemarginalproductivitytheoryofincomedistribution,everyfactorofproductionispaiditsequilibriumvalueofthemarginalproduct.EquilibriumintheLaborMarketEquilibriumintheLaborMarketMarketLaborSupplyCurveEMarketLaborDemandCurveL*W*EquilibriumemploymentEquilibriumvalueofthemarginalproductoflaborQuantityoflabor(workers)RentalrateTherearesomeissuesopentodebateaboutthemarginalproductivitytheoryofincomedistribution:Dothewagedifferencesreallyreflectdifferencesinmarginalproductivity,orissomethingelsegoingon?Whatfactorsmightaccountforthesedisparitiesandareanyoftheseexplanationsconsistentwiththemarginalproductivitytheoryofincomedistribution?IstheMarginalProductivityTheoryofIncomeDistributionReallyTrue?EquilibriaintheLandandCapitalMarketsQuantity(a)TheMarketforLandQuantity(b)TheMarketforCapitalRentalrateDLandR*CapitalSCapitalSLandDCapitalQ*LandQ*CapitalR*LandRentalrateMedianEarningsbyGenderandEthnicity,2006Hispanic

(maleandfemale)AfricanAmerican

(maleandfemale)Female(allethnicities)$45,722$27,337$24,893$29,16645,000$50,00040,00035,00030,00025,00020,00015,00010,0005,0000WhitemaleAnnualmedianearnings,2006Compensatingdifferentialsarewagedifferencesacrossjobsthatreflectthefactthatsomejobsarelesspleasantthanothers.

Compensatingdifferentials,aswellasdifferencesinthevaluesofthemarginalproductsofworkersthatarisefromdifferencesintalent,jobexperience,andhumancapital,accountforsomewagedisparities.

MarginalProductivityandWageInequalityItisclearfromthefollowinggraphthat,regardlessofgenderorethnicity,educationpays.Thosewithahighschooldiplomaearnmorethanthosewithoutone,andthosewithacollegedegreeearnsubstantiallymorethanthosewithonlyahighschooldiploma.MarginalProductivityandWageInequalityEarningsDifferentialsbyEducation,Gender,andEthnicityWhitemale$70,00060,00050,00040,00030,00020,00010,0000Annualmedianearnings,2006WhitefemaleAfrican-AmericanmaleNoHSdegreeHSdegreeCollegedegreeAfrican-AmericanfemaleHispanicmanHispanicfemaleMarketpower,intheformofunionsorcollectiveactionbyemployers,aswellastheefficiency-wagemodel,alsoexplainhowsomewagedisparitiesarise.Unionsareorganizationsofworkersthattrytoraisewagesandimproveworkingconditionsfortheirmembersbybargainingcollectively.MarginalProductivityandWageInequalityAccordingtotheefficiency-wagemodel,

someemployerspayanaboveequilibriumwageasanincentiveforbetterperformance.Discriminationhashistoricallybeenamajorfactorinwagedisparities.Marketcompetitiontendstoworkagainstdiscrimination.MarginalProductivityandWageInequalityTheEconomicsofApartheidUntilthepeacefultransitiontomajorityrulein1994,theRepublicofSouthAfricawascontrolledbyitswhiteminority,whichimposedaneconomicsystemknownasApartheid.ThissystemoverwhelminglyfavoredwhiteinterestsoverthoseofnativeAfricansandother“non-White”groups.Thegovernmentinstituted“jobreservation”lawsthatensuredthatonlywhitesgotjobsthatpaidwell.Thegovernmentalsocreatedjobsforwhitesingovernmentindustries.In1994,Apartheidwasabolished.Unfortunately,largeracialdifferencesinearningsremain.Apartheidcreatedhugedisparitiesinhumancapitalwhichwillpersistformanyyearstocome.SoDoesMarginalProductivityTheoryWork?Themainconclusionyoushoulddrawfromthisdiscussionisthatthemarginalproductivitytheoryofincomedistributionisnotaperfectdescriptionofhowfactorincomesaredetermined,butthatitworksprettywell.It’simportanttoemphasizethatthisdoesnotmeanthatthefactordistributionofincomeismorallyjustified.TheSupplyofLaborDecisionsaboutlaborsupplyresultfromdecisionsabouttimeallocation:

howmanyhourstospendondifferentactivities.Leisureistimeavailableforpurposesotherthanearningmoneytobuymarketedgoods.Inthefollowinggraph,theindividuallaborsupplycurveshowshowthequantityoflaborsuppliedbyanindividualdependsonthatindividual’swagerate.TheSupplyofLaborAriseinthewageratecausesbothanincomeandasubstitutioneffectonanindividual’slaborsupply.Thesubstitutioneffectofahigherwagerateinduceslongerworkhours,otherthingsequal.Thisiscounteredbytheincomeeffect:higherincomeleadstoahigherdemandforleisure,anormalgood.Iftheincomeeffectdominates,ariseinthewageratecanactuallycausetheindividuallaborsupplycurvetoslopethe“wrong”way:downward.TheIndividualLaborSupplyCurveIndividuallaborsupplycurveIndividuallaborsupplycurve50400$2010400$201030(a)TheSubstitutionEffectDominatesQuantityofleisure(hours)(b)TheIncomeEffectDominatesWagerateWagerateQuantityofleisure(hours)WhyYouCan’tFindaCabWhenItsRainingAccordingtoastudypublishedintheQuarterlyJournalofEconomics,cabdriversgohomeearlywhenit’sraining.Thehourlywagerateofataxidriverdependsontheweather.Whenit’sraining,driversearnmoreperhour.Itseemsthattheincomeeffectofthishigherwagerateoutweighsthesubstitutioneffect.However,ifdriversthoughtintermsofthelongrun,theywouldrealizethatrainydaysandnicedaystendtoaverageout,implyingthattheirhighincomesonarainydaydon’treallyaffecttheirlong-runincomeverymuch.Thestudyseemstoshowclearevidenceofalaborsupplycurvethatslopesdownwardinsteadofupward,thankstoincomeeffects.ShiftsoftheLaborSupplyCurveThemarketlaborsupplycurveisthehorizontalsumoftheindividualsupplycurvesofallworkersinthatmarket.Itshiftsforfourmainreasons:changesinpreferencesandsocialnormschangesinpopulationchangesinopportunitieschangesinwealthTheDeclineoftheSummerJobComesummertime,resorttownsalongtheNewJerseyshorefindthemselvesfacingarecurringannualproblem:aseriousshortageoflifeguards.Inrecentyears,agrowingnumberofyoungAmericanshavechosennottotakesummerjobs.Oneexplanationforthedeclineisthatmorestudentsfeeltheyshoulddevotetheirsummerstoadditionalstudy.Anotherimportantfactorisincreasinghouseholdaffluence,whichhasresultedinmanyteenagersnolongerfeelingthepressuretocontributetohouseholdfinancesbytakingsummerjobs.Theincomeeffecthasledtoareducedlaborsupply.Anotherfactorpointstothesubstitutioneffect:increasedcompetitionfromimmigrants,whoarenowtakingontheteenagers’jobs,suchasdeliveringpizzasandmowinglawns.Thishasledtoadeclineinwagessoteenagersforgosummerworkandconsumeleisureinstead.Thereare

marketsforfactorsofproduction,includinglabor,land,

andbothphysicalcapitalandhumancapital.

These

marketsdeterminethefactordistributionofincome.Profit-maximizingprice-takingproducerswillemploya

factoruptothepointatwhichitspriceisequaltoits

valueofthemarginalproduct—themarginalproduct

ofthefactormultipliedbythepriceoftheoutputitproduces.

Thevalueofthemarginalproductcurveis

thereforetheindividualprice-takingproducer’sdemand

curveforafactor.Themarketdemandcurveforlaboristhehorizontalsum

oftheindividualdemandcurvesofproducersinthat

market.Itshifts