Teacher’s guide - D
D
LABOR MARKET
1. SUMMARY This section focuses on the relationship between employers and workers, and how the laws of supply and demand operate in the labor market. You will reflect on why people “enter” the labor market, and will be invited to reflect that these laws cannot always be applied in the real ‘labor market’. You will also learn about wages and how they are affected by the law of supply and demand, and will reflect on the idea of ‘labor productivity’: can it be applied to all jobs? Also, you will discuss why some jobs are paid more than others.
2. KEY CONTENTS
Supply and demand in the labor market;
Worker’s marginal product of labor (MPL);
Why people enter the labor market;
Labor productivity;
Why some jobs pay more than others.
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GT4 | Unit 10 | Teacher’s guide - D
Teacher, discuss these questions with the class and add other relevant questions, such as: Is salary the most important thing when choosing a job? / Why are some jobs better paid than others?
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Discuss these questions.
In what situation(s) do you think a worker can ask for a lot of money?
In what situation(s) can an employer pay less money to workers?
Match the words with the definitions. 1. supply
A.
[ 4 ] choosing
2. demand
B.
[ 6 ] to employ someone or pay someone to do a particular job
3. wage
C.
[ 5 ] money that is earned from doing work
4. picking
D.
[ 2 ] a need for something to be sold or supplied
5. income
E.
[ 7 ] the money that a company receives
6. hire
F.
[ 1 ] to provide something that is wanted or needed
7. revenue
G.
[ 8 ] an organization that represents the people who work in a particular industry
8. union
H.
[ 3 ] amount of money that is paid to an employee
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LABOR MARKET Economists talk about the world of work as the ‘labor market’, or the supply of and demand for work by people in the economy. As soon as we start working, we ‘enter the labor market’, either as an individual offering skills or as an employer seeking them. The relative number of job seekers vs available work — the supply of labor and the demand for labor — determines how much people get paid for their work, or their wages. So why do we ‘enter the labor market’ in the first place? A big assumption in a lot of simple labor market models is that individuals are motivated to work by money. In theory, we’d love to sit around all day and have fun, but because we need to buy things to live, we spend some time working to earn the money we need. By this logic, the way we decide how much we want to work is by weighing up how valuable our time off is compared to how much money we would make working. Because the labor market is controlled by supply and demand, everyone should always be able to work as many hours as they want. If you want more money, you can always work more for a lower wage. In this sense, by picking how much they work, workers get to determine their income within the limits of the kind of jobs they are able to do and the number of hours they can physically work. Some parts of this story clearly do not match up to the real world. A lot of people want to work but can’t. And a lot of people go to work for reasons other than money. So while these simplified models help make economists’ jobs easier, they are not always the most useful way to think about the real ‘labor market’ we live in. WAGES Who decides how much you earn? According to most economics textbooks, our wages are determined just like any other price: by supply and demand. People supply their labor, and companies demand it, creating a market for labor. 4
GT4 | Unit 10 | Teacher’s guide - D
In broad terms, the standard theory is pretty straightforward. When a lot of people can do the same job, the wage for that job is pushed down (because more people can supply their labor). When it takes special skills or education to do a job, wages are pushed up, because fewer people can supply their labor. On the demand side, employers are willing to pay more for an employee that can make them more money. Economic theory actually gets really specific about exactly how much each person is paid. According to the theory, when companies want to hire a new worker, they will look at how much money they think the worker will bring into the company. Economists call this number the worker’s marginal product of labor (MPL). It wouldn’t make sense for a company to pay someone more than the amount of money they’ll bring in, or the company would lose money on the employee. It’s also no good if they try to pay the employee less than what they’ll bring in, because some other company could pay a higher wage to steal the employee away and still make money on the deal. So wages are set exactly at the amount of revenue the new employee will create: their marginal product of labor. This theory describes a ‘perfect’ market, where all the employers are trying to maximize profit, there’s lots of competition and everyone is able to work as much as they want. Pretty much everyone recognizes that’s not always the case. But some economists think the theory is close enough to the real world to be useful, and others think it’s just way off. They think it ignores important parts of how the real world works — things like unemployment, power inequalities and unions. First off, the idea of ‘labor productivity’ doesn’t make sense for every job. You might be able to reasonably calculate how much an additional salesclerk or factory worker will make you, but for a lot of jobs it’s not so clear cut. And it’s even harder to apply the concept to non-profit sectors like public education, medicine or security where the employees aren’t bringing in revenue, but are instead making some kind of public good (like education, health or safety). Also, in the theory, wages are held up by competition between employers: if you think you are not being paid what you are worth, you can quit and get a higher wage. But in the real world that’s a pretty risky strategy; you might end up stuck with no job instead. Persistent unemployment changes workers options in a way that can give employers more power in determining pay. Workers can also become more powerful when they are able to organize into unions. A single worker might not have much to say about their wages, but millions of workers acting together can force employers to set wages higher, or provide other benefits like better working conditions. Similarly, governments can create regulations like minimum wages that bring wages up as well. Supply and demand also doesn’t say much about the value of a job. A lot of the most socially beneficial jobs aren’t the best paid: talk to any public school teacher or nurse about this one. 5
Supply and demand are still pretty powerful ideas for explaining why some jobs are paid more than others. However, it is just good to remember that it’s not always the whole story: power often plays a big role too.
CASE STUDY 1 Why is LeBron (basketball player) paid more than a nurse?
SUPPLY Salesclerks get paid less than nurses, because it takes a lot longer to train someone to be a nurse than a clerk (more people can supply their labor as a clerk). And LeBron James gets paid more than a nurse, because the supply of basketball super-humans is incredibly small: no matter how hard you work, you’ll probably never be quite as good at basketball as King James.
CASE STUDY 2 Why are some accountants paid more than others?
PRODUCTIVITY An accountant working for a big French company will probably make more than an accountant working for a Ukrainian company. They have similar training and are doing similar work. But if each is paid according to the monetary value they bring the company, the French accountant will make more because her company is more profitable. Her ‘marginal product of labor’ is determined not just by the work she does, but also by the company she works for. The same set of skills are more ‘valuable’ in one country than another, because skills only have value within the context of what is happening in the wider economy. Source: https://www.ecnmy.org/learn/your-livelihood/wages/who-decides-how-much-we-earn/ [Adapted]
Teacher, model the activity by completing the first one with them.
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GT4 | Unit 10 | Teacher’s guide - D
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Based on the text, complete the sentences below in your own words. 1.
The supply and demand in the labor market means
2.
When a lot of people can do the same job the wage for that job is pushed down (because more.
3.
The price of labor rises because
the relative number of people seeking .a
job versus the available work. In other words, the supply of labor and the demand for labor.
people can supply their labor).
fewer people can supply the employer’s labor. This situation happens .
when it takes special skills or education to do a job.
4.
When companies want to hire a new worker, they will look at how much money they think the. worker will bring into the company.
5.
The concept of Marginal Product of Labor (MPL) means
the amount of revenue the new .
employee will bring into the company.
After Ss have completed the sentences, go over the possible answers with them making comments about the answers, and promoting a discussion of key concepts.
Ss discuss it first in pairs and then as a group. Teacher, monitor and offer help when necessary.
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Discuss this question. What would influence whether you want to work or not? Think about:
wages
free time (time off)
where the job is situated
nature of work
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DISCUSSION (CASE STUDIES 1 AND 2) Discuss these questions.
Why are some jobs paid better than others?
Because of the law of supply and demand.
Why do some people get paid more than others for doing the same job? Because of the difference in productivity.
Read case studies 1 and 2 again. The first one is related to supply supply, while the second is related to productivity productivity. Can you think of two other examples for each case? Explain the situation with a small presentation to the class. Teacher, this a moment for a nice conversation about the value of jobs in society: why are some people’s jobs more valued than others?
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Discuss these questions.
Do people only work for money?
What other motivation is there to work?
Have a discussion with the whole group.
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TV INTERVIEW Prepare a TV interview with an expert on the topic of the Labor Market. One person will be the interviewer and the other will be the expert (economist). You could pretend you are part of a talk show on TV and the rest of the class can be the audience.
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GT4 | Unit 10 | Teacher’s guide - D
Think of the following questions to guide your interview:
How is the labor market just like any other market?
What affects demand for labor?
What affects the supply of labor?
What motivates people to work?
Any other relevant question.
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