Question

Assume that the United States has two sectors: the food sector has land as a specific factor and the manufacturing sector uses capital as a specific factor. Labour is mobile across sectors. Suppose that exceptionally good weather enables several states to enjoy ‘bumper’ crops that lead to an 8 percent decline in the price of food.

1. Illustrate the effect on the labour demand curves for food and manufactured goods and the impact on wages?

2. How does the distribution of labour across sectors change? How does the output of each sector change?

3. How does the decline in the relative price of food affect the income distribution across capitalists and landowners?

4. What can be said about the impact on the earnings of workers? Could you provide a more definite response if you were told that food was by far the most important item in a worker’s consumption basket?

Answer 1

3the labour demand curves for food and manufactured goods:

Markets for labor have demand and supply curves, just like markets for goods. The law of demand applies in labor markets this way: A higher salary or wage—that is, a higher price in the labor market—leads to a decrease in the quantity of labor demanded by employers, while a lower salary or wage leads to an increase in the quantity of labor demanded. The law of supply functions in labor markets, too: A higher price for labor leads to a higher quantity of labor supplied; a lower price leads to a lower quantity supplied.

In 2013, about 34,000 registered nurses worked in the Minneapolis-St. Paul-Bloomington, Minnesota-Wisconsin metropolitan area, according to the BLS. They worked for a variety of employers: hospitals, doctors’ offices, schools, health clinics, and nursing homes. Figure 1 illustrates how demand and supply determine equilibrium in this labor market. The demand and supply schedules in Table 1 list the quantity supplied and quantity demanded of nurses at different salaries.

SHIFTS IN LABOR DEMAND:
In 2013, about 34,000 registered nurses worked in the Minneapolis-St. Paul-Bloomington, Minnesota-Wisconsin metropolitan area, according to the BLS. They worked for a variety of employers: hospitals, doctors’ offices, schools, health clinics, and nursing homes. Figure 1 illustrates how demand and supply determine equilibrium in this labor market. The demand and supply schedules in Table 1 list the quantity supplied and quantity demanded of nurses at different salaries.

Shifts in the demand curve for labor occur for many reasons. One key reason is that the demand for labor is based on the demand for the good or service that is being produced. For example, the more new automobiles consumers demand, the greater the number of workers automakers will need to hire. Therefore the demand for labor is called a “derived demand.” Here are some examples of derived demand for labor:

• The demand for chefs is dependent on the demand for restaurant meals.
• The demand for pharmacists is dependent on the demand for prescription drugs.
• The demand for attorneys is dependent on the demand for legal services.

As the demand for the goods and services increases, the demand for labor will increase, or shift to the right, to meet employers’ production requirements. As the demand for the goods and services decreases, the demand for labor will decrease, or shift to the left. Table 2 shows that in addition to the derived demand for labor, demand can also increase or decrease (shift) in response to several factors.

the distribution of labour :

the workforce across economic sectors:

In 2020, 41.49 percent of the workforce in India were employed in agriculture, while the other half was almost evenly distributed among the two other sectors, industry and services. While the share of Indians working in agriculture is declining, it is still the main sector of employment .

A BRIC powerhouse :
Together with Brazil, Russia, and China, India makes up the four so-called BRIC countries. They are the four fastest-growing emerging countries dubbed BRIC, an acronym, by Jim O’Neill at Goldman Sachs. Being major economies themselves already, these four countries are said to be at a similar economic developmental stage -- on the verge of becoming industrialized countries -- and maybe even dominating the global economy. Together, they are already larger than the rest of the world when it comes to GDP and simple population figures. Among these four, India is ranked second across almost all key indicators, right behind China.

Economic Inequality, Food Insecurity:
This article explores how economic inequality in the United States has led to growing levels of poverty, food insecurity, and obesity for the bottom segments of the economy. It takes the position that access to nutritious food is a requirement for living and for participating fully in the workplace and society. Because of increasing economic inequality in the United States, growing segments of the U.S. economy have become more food insecure and obese, eating unhealthy food for survival and suffering an erosion of “equality of capabilities” that undermines their ability to play a “full and active part in the functioning of (their) community.” Unequal access to nutritious foods in the United States is attributable in part to an industrial food system that is designed to produce short-term profits for industrial food producers, processors, and distributors that extract surplus labor value through market concentration and opportunistic behavior at the expense of the long-term benefits for consumers, food workers (including farmers), and ecosystems. Economic inequality, food insecurity, and the erosion of equality of capabilities in the United States have given rise to protest movements, social movements, social innovations, and some modest strengthening of regulations to make access to and consumption of healthy food a right for every person. Implications for business and society research are explored.

Factors That Affect Wage Levels :
Most people work to earn a living, which they do by supplying their labor in return for money. Laborers consist of unskilled workers, blue and white collar workers, professional people, and small business owners. Most people work to earn a living, which they do by supplying their labor in return for money. Laborers consist of unskilled workers, blue and white collar workers, professional people, and small business owners.

Nominal wage is the amount earned in terms of dollars or other currency, while the real wage is the amount earned in terms of what it can actually buy. If the nominal wage does not increase as much as the inflation rate, then real wages decline. Wages differ among nations, regions, occupations, and individuals. Generally, wages will be higher where the demand for labor exceeds the supply. Nominal wages vary more than real wages, since the purchasing power of different currencies varies considerably. For instance, in countries with low-priced labor, such as China and India, household goods and services have lower prices than in more advanced economies.

The main factor that determines the upper limits of wages is the productivity of the business in combining inputs to produce socially desirable outputs. Obviously, more productive workers can be paid more. Productivity largely depends on the availability of real capital, in the form of machinery and automation, and on the availability of natural resources, which are required as inputs in the production of products and services.

A purely competitive labor market exists when:

• many firms compete for specific labor;
• the laborers have identical skills;
• both the firms and the workers are wage takers, since neither can influence the wage rate;
• there are no unions, since union wages are generally not the result of market supply and demand.

The market demand for labor is for a specific type of labor and not necessarily for a specific industry. If one industry paid more than another for a specific type of labor, then more laborers would work for that industry until the wages equalized.

Graph #1 :
Under pure competition, the wage rate is set by the intersection of the labor supply curve and the demand curve of employers, as seen in Graph #1. As is true of supply curves in general, the higher the wage rate, the higher the supply of labor and the lower the demand. In economics, labor is considered a resource. Therefore, the price of labor is represented as a marginal resource cost (MRC) and the employer's demand for labor is represented by the marginal revenue product (MRP). Employers will continue to hire workers as long as the marginal revenue product of the last worker exceeds his marginal revenue cost (MRP ≥ MRC). In other words, as long as the revenue earned by the workers exceeds their cost, the employer will increase profits by hiring more workers.

Graph #2 :
The labor market equilibrium occurs at the intersection of labor supply curve and the labor demand curve. In a perfectly competitive labor market, the supply of labor is perfectly elastic, so a firm can hire all the workers that it wants for the market wage rate. The firm will hire enough labor until the MRP of the last laborer hired is equal to his MRC. MRC is constant and is equal to the resource price, or in this case, the wage rate (Graph #2). The area represented under the MRC line is equal to the cost of labor. Above that line and below the MRP line is the cost for land, capital, and entrepreneurship, which includes a normal profit.

Target income:
Target income is also an influential factor that determines how the level of income, or changes in income, will affect the work-leisure trade-off. People who reach their target income are more likely to seek more leisure time by working less. One advantage of keeping social assistance or unemployment insurance income low is that it will be below the target income for most people, which will increase their desire to search for more work.

Efficiency wage:

Efficiency wage theory stipulates that workers will work harder and be more productive if they are paid better; if they are paid less, then they will be less productive and seek other ways to work as little as possible. This complicates the assumption of conventional economics that profits or wages are inversely related: when wages go up, then profits decline, and vice versa. Efficiency wage theory proposes that there is a unique wage just high enough to motivate the worker, so that lower wages will lower productivity even though it also lowers costs, and higher wages will not increase efficiency enough to offset the cost of higher wages.