1. MicroeconomicsCorso E John Hey

2. Chapter 26 • The LABOUR MARKET • The supply of labour. • The demand for labour. • Equilibrium. • Minimum wage legislation?

3. Two questions for you • An increase in the wage rate implies an increase in the supply of labour? • Minimum wage legislation is a Good Thing?

4. The supply of labour • We use the analysis of Chapter 6 • The space: (T,C) • T: free (non-working) time • C: consumption • The supply of labour – Lowhere • Lo =24 – T • ...depends upon the preferences. • Obviously both consumption and leisure time are desirable (are both goods). • Let us go to Maple…

5. The demand for labour • We use the analysis of Chapters 11, 12 and 13. • We begin in a space with... • ... Ldthe demand for labour on the horizontal axis... • ... and total Costs total and total revenues on the vertical axis. • Let us assume we are in a short period with fixed costs equal to 5, and the wage fixed at 1 per unit.

8. The optimality condition for the demand for labour • The slope of the total cost curve must be equal to the slope of the total revenue curve. • The slope of the total cost curve is equal to the wage rate. • The slope of the total revenue curve is equal to the price of output multiplied by the marginal product of labour. • Hence the optimality condition: the real wage rate (the wage rate divided by the price of output) must be equal to the marginal product of labour.

11. A minimum wage? • What happens in this market if the government introduces a minimum wage? • Obviously at a level higher than the equilibrium wage in the competitive market.

14. Chapter 26 • Goodbye!