Transcription of Labor Market Equilibrium - Harvard University
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Labor Market Equilibrium - Harvard University
Confirming Pages Chapter 4. Labor Market Equilibrium Order is not pressure which is imposed on society from without, but an Equilibrium which is set up from within. Jos Ortega y Gasset Workers prefer to work when the wage is high, and firms prefer to hire when the wage is low. Labor Market Equilibrium balances out the conflicting desires of workers and firms and determines the wage and employment observed in the Labor Market . By understanding how Equilibrium is reached, we can address what is perhaps the most interesting question in Labor economics: Why do wages and employment go up and down? This chapter analyzes the properties of Equilibrium in a perfectly competitive Labor Market .
Because the labor demand curve gives the value of marginal product, it must be the case that the area under the labor demand curve gives the value of total product. Each worker receives a wage of w * . Hence, the profits accruing to firms, which we call producer surplus, are given by the area of the triangle P. 1
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