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Lectures in Macroeconomics- Charles W. Upton
Our Revised Model
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The Demand Curve
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The demand curve shows us
the demand for work as a
function of the wage rate.
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The Long Run Supply Curve
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The demand curve shows us
D
The
runassupply
curve SLR
the demand
forlong
work
a
shows
usrate.
how people will
function of the
wage
respond to a permanent rise in
labor demand.
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The Short Run Supply Curve
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The demand curve shows us
D
The
runassupply
curve SLR
the demand
forlong
work
a
SR
Thefunction
short run
supply
curve
S
shows
usrate.
how people will
of the
wage
shows us how
people
respond
to awill
permanent rise in
respond to a temporary
risedemand.
in
labor
labor demand
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Expectations
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The demand curve shows us
D
Or
what
they
expect
is
a
LR
The
runassupply
curve S
the demand
forlong
work
a
SR
Thefunction
short run
supply
curve
S
temporary
rise.
shows
usrate.
how people
will
of the
wage
shows us how
people
respond
to awill
permanent rise in
respond to a temporary
risedemand.
in
labor
labor demand
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Some Applications
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When are you on your short
run labor supply and when are
you on your long run labor
supply function?
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John Smith
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John Smith, currently
employed at $10 an hour, loses
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his job. He starts looking for a
new, comparable job, but it
will take some time. In the
meantime, the best he can find
is a pizza baker at $6 an hour.
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D
John Smith
SR
SLR
S
John Smith, currently
employed at $10 an hour, loses John is on his
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his job. He starts looking for a short run labor
new, comparable job, but it supply curveD
will take some time. In the
meantime, the best he can find
is a pizza baker at $6 an hour.
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Frank Wilson
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Frank Wilson is a junior
economics major. Right now,
the best job he can find is a job
at Miller’s Pizzeria at $6 an
hour
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Frank Wilson
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Frank Wilson is a junior
economics major. Right now,
the best job he can find is a job
at Miller’s Pizzeria at $6 an
hour
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Frank is on his
short run labor
supply curveD
Bill Wilson
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Bill Wilson, Frank's twin
brother, is not going to college.
He, too, learns that the best job
he can find is baking pizzas at
$6 an hour.
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Bill Wilson
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Bill Wilson, Frank's twin
brother, is not going to college.
He, too, learns that the best job
he can find is baking pizzas at
$6 an hour.
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Bill is on his
long run labor
supply curveD
Life is Uncertain
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Sometimes it isn't clear
whether you which curve you
are on.
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Sally Jones
Sally Jones is majoring
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in
Fashion Design. One of her
designs has fascinated a
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famous designer in New York,
who has offered her the chance
to come to Manhattan and
work at $100 an hour
completing the design and
helping design a whole line
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Sally Jones
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Sally Jones is majoring in
Fashion
Design. One of her It isn’t clear
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designs has fascinated a
whether Sally
D
famous designer in New York, is on her long
who has offered her the chancerun or short run
to come to Manhattan and
labor supply
work at $100 an hour
curve.
completing the design and
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helping design a Temporary
wholeor line
Edith Wilson
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Edith Wilson has been laid off
from her $20 an hour job. The
best job she can find now is at
$14 and hour, and she cannot
do better unless the economy
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picks up.
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Edith Wilson
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Business Week and
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the Wall Street
Edith Wilson has been laid
off
Journal
have bothD
from her $20 an hour job. Therun stories
best job she can find now forecasting
is at
rapid
$14 and hour, and she cannot
economic
growth
in
do better unless the economy
coming months
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picks up.
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Edith Wilson
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Business
Week
Edith, alas,
doesn’t
readand
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the Walloften.
Street On
business publications
Edith Wilson has been laid
off
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Journal
have
both
the few occasions she does read,
from her $20 an hour job. Therun stories
skeptical
she
best job sheshe
can is
find
now forecasting
is atabout what
rapid
reads.
$14 and hour, and she cannot
economic
growth
in
do better unless the economy
coming months
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picks up.
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Edith Wilson
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Business
Week
and
Edith,
alas,
doesn’t
read
Though
Edith should read more,
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the Walloften.
Street On
business
publications
getshas
kudos
some
Edithshe
Wilson
beenfor
laid
off
D
Journal
have
both
the No
fewmatter
occasions
she
does read,
skepticism.
what
the
from her $20 an hour job. Therun stories
is
skeptical
about
papers
however,
is onwhat she
best
job say,
sheshe
can
find
nowEdith
is
at
forecasting rapid
reads.
$14
andifshe
herand
LRhour,
curve
shecannot
does not
economic
growth
in
doexpect
better unless
the economy
recovery,
and her SR
coming months
H*
picks
up.
curve if she does.
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Edith Wilson Again
LR
S
Some years later, Edith Wilson
has been laid off again from
herw*$20 an hour job. The best
job she can find now is at $14
and hour, and she cannot do
better unless the economy
picks up.
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Edith Wilson Again
LR
SR
S
S
Some years later, Edith Wilson
Having learned her
has been laid off again from
herw*$20 an hour job. The best
lesson, she reads
D
job she can find now is at
$14 Now Business
more.
and hour, and she cannotWeek
do and the Wall
better unless the economy
Street Journal say
picks up.
recovery is uncertain.
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Edith Wilson Again
LR
SR
S
S
Some years later, Edith Wilson
Having
learned
has been laid
off again
from
Should
Edith
move along
herher
LR
herw*$20 an hourorjob.
best
lesson,
reads
SR The
labor
supplyshe
curve?
D
job she can find now is at
$14 Now Business
more.
and hour, and she cannotWeek
do and the Wall
better unless the economy
Street Journal say
picks up.
recovery is uncertain.
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Edith Wilson Again
LR
SR
S
S
Some years later, Edith Wilson
Having
learned
has been laid
off again
from
Should
Edith
move along
herher
LR
herw*
$20 an
The
best
lesson,
reads
This
ishour
a tricky
Weshe
will
orjob.
SRproblem.
labor
supply
curve?
D
job she can find
nowback
is at
$14it. Now Business
more.
come
to
and hour, and she cannotWeek
do and the Wall
better unless the economy
Street Journal say
picks up.
recovery is uncertain.
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Jacque Dreze
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Jacque Dreze, a French
Citizen, finds his after tax
wages cut by 40% thanks to
new government taxes.
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Jacque Dreze
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The good news is that the
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French government spends the
Jacque
Dreze,
a French
money
on things
for Jacque
Citizen,
finds
afterhave
tax bought
which
he his
would
wages cut by 40%
thanks to
anyway.
new government taxes.
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Jacque Dreze
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S
LR or SR?
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Jacque Dreze
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S
LR or SR?
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SR
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Summary
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Summary
• Often, it is clear
when a wage rate
is temporary or
permanent.
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Summary
• Often, it is clear
when a wage rate
is temporary or
permanent.
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• But there are
cases when it is
not.
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Summary
case
• Often,The
it isuncertainty
clear
complicated.
We
when aiswage
rate
focus initially
is temporary
or on the
certain cases. w*
permanent.
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• But there are
cases when it is
not.
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End
©2004 Charles W. Upton.
All rights reserved
Temporary or Permanent
