Labor Demand And Labor Supply

856 WordsNov 16, 20154 Pages
To understand wage differences across different occupations it is important to understand how labor supply and labor demand is derived. This relationship is important because wages are a huge influence for the people choosing a career. Although important in the decision process, wages are not the only thing that workers look at. If wages were the only factor then workers would gravitate to the careers with higher wages until equilibrium is met. Other factors in choosing a career include riskiness, preference, education and future events. This paper is intended to explain how wages, labor demand and labor supply is derived and how these relationships are relative to workers picking a career. To best understand these relationships one must explore what wage actually represents. Wage is equal to the value of marginal product of labor. Marginal product of labor refers to the productivity of the worker. (Alden 2014) The value of marginal product of labor refers to price times MPL. (Albany 2014) This relationship proves that if the price of a good or service increases then the Vmpl will increase. Since price and MPL are directly related, an increase in price of a product or service will ultimately increase the wage of the workers in the industry related to the product or service. (Albany 2014) Vice versa, if the price of a product/service decreases then the wages decrease. Lastly, if price is volatile then the wages in that industry will also be volatile. (Albany 2014) For
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