Labor If were going to explain why some people earn a great deal of income while others earn very little, we must consider both the supply and the demand for labor. We usually ask ourselves why does the average college graduate earn over $40,000 while the average high school graduate earn less than $25,000? To find answers to these questions we must examine the behavior of labor markets. We first must start by looking at supply of labor, which is the willingness and ability to work specific amounts of time at alternative wage rates in a given period. Offering to sell your time and talents to anyone whos willing to pay the right price. The reward of working comes in two forms: 1) The intrinsic satisfaction of working 2) A pay check MBA grads say they care more about the intrinsic satisfaction than the pay. They also get huge paychecks however; those big paychecks are explained in part by the quantity of labor supplied. MBA grads often end up working 60 or more hours a week. The reason people are willing to work so many hours is that they want more income. Not working obviously has some value, too. We need some non work time just to recuperate form working. We also want some time to watch television, go to a soccer game in other word enjoy the goods and services weve purchased. The inevitable trade-off between labor and leisure explains the shape of individual labor supply curve. As we work more hours, our leisure time becomes scarce and more valuable. The upward slope of an individuals labor supply curve is thus a reflection of two potential phenomena (look at p.305 figure 15.1): 1) The increasing opportunity cost of labor as leisure time declines 2) The decreasing marginal utility of income as a person works more hours. Some people will work because of flexible hours or just to have time at home, for this reason people do not always go for what the wage is. Sometimes people are willing to work for…
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