So just like we saw shifts in the demand curve and the supply curve. When we were talking about product markets and learning supply and demand, we see the same thing here. There could be shifts in the demand and supply for labor. All right. So let's start with one of the shifts in demand and that is the change in the output price. Let's check it out. Okay, So the demand curve, right? It can shift left or right. Just like with goods, the first one we're gonna talk about here is a change in the output price. So remember the output price, This is what we're selling our product for. So, when we're talking about the production function, we're selling our pizzas for $5. But what if the price of the pizza changed? What if it went up or down? We'll remember that our demand curve has to do with the marginal revenue product, right? The marginal revenue product is our demand curve. So remember that the marginal revenue product is price times M. P. L. This price, that is the output price. So if that output price changes, it's gonna change our marginal revenue product and it's gonna change our demand for labor. Okay? So if the output price increases, well then our labor demand shifts to the right, Okay, that's a good thing for us there. The output price increases. There's a higher price. We can sell each pizza at a higher price. That's good if the output price decreases. Well, it's going to shift our labor demand to the left, right? So we're not gonna want to hire as many workers when there's a lower price. So let's go ahead and just look at an example here and see how this is gonna affect the number of workers we hire. So this is that same example we've been dealing with. Where there's a pizza shop selling pizza's here. And our original example, when we studied the production function Was an output price of $5. Right? And we have a wage of 80. And that $80 wage is gonna stay constant in both of our cases. Okay? So this was our original case where we had $5 per pizza and I've got it all filled out here. We discussed that we would end up hiring four workers, right? We would hire these four workers Because that's where our marginal revenue still exceeds our marginal cost. Right? Once we hired that fifth worker, we had negative marginal profit for that fifth worker, and we don't want to hire them because we'll make less money. Cool. So we discussed that already, but now let's see what happens when we change the price. Okay, so the price was $5, but now let's say the output price dropped to $2 per pizza. Okay, so one from five. Now we're talking about two, but the wages the same, right? We still got an $80 wage. Now this isn't gonna affect our marginal product of labor, right? The marginal product of labor is just how many workers do we have? It doesn't matter the output price or anything. We're gonna have that same marginal product of labor based on the number of workers we hire. But the marginal revenue product, remember that does change because we're gonna have the price times the mpl So now, instead of multiplying that Mpl times five, we have to multiply it by two. So you're gonna imagine that all our marginal revenue products are going to be lower than at the $5 price. All right. So let's start here. We have one worker are mpl was 30. So, we're gonna do $2 times 30 right? We're not doing $5 times 32 times 30. That gives us a marginal revenue product of 60. How about 50 the next. The second worker brings in 50 extra pizzas times $2. That's $100 right? 50 times the $2. The third worker brings in 70 extra pizzazz times $2. Well, R. M. R. P. 70 times two that's 100 and $40. And then again, 30 times two. That's $60 here. And the final worker bringing in 10 extra pizzazz times the $2. Well, he's only gonna bring in an extra $20 now. So notice how all these M. R. P. S. Are lower than our example above, right? All the M. R. P. S. Have come down because the price has come down. So, you can imagine remember we're setting that mrp equal to the wage. We want to find that profit max quantity of workers where the mrp equals wage. So if this mrp is lower we're getting closer to the wage sooner. Right? So let's see what happens here. The wage hasn't changed. Right? And remember that that wages still are marginal cost because all our other costs are fixed right? There's no other costs here. We're just hiring an extra worker each time. Okay? So when we have one worker well we gotta pay him $80. The second worker also gets $80 and it's just $80 all the way down here. Right we're not adding the cost of all of the workers each time because it's the marginal cost. We already had one worker we were paying $80. Now we're gonna get a second worker. We gotta pay an extra 80 not the total amount. Okay so let's go ahead and calculate our marginal profit in each case. And that's gonna be this M. R. P. Minus that marginal cost minus the wage. Right? I'm gonna put wage their mrp minus the wage. Okay so let's go ahead and do this 60 minus 80. Well you're seeing already look at this this is a negative profit here on the first the first unit but how about the second or not unit? First worker? Second worker? Well he brings in $100 minus the 80 of his wage. Well this one has a positive 20 right? $100 marginal revenue product minus $80 wage, gives us 20. The next 11 40 minus 80. Well, here, it's still going up now, we're getting 60. Cool, How about that fourth worker? Remember the last time we wanted to hire the fourth worker? Right? Because he was still bringing us money. But now check it out. The marginal revenue product of the fourth worker is only 60 and we gotta pay him 80. So this is gonna be negative 20 in this case, right? We're losing money on the fourth worker now, because of the lower price, last but not least 20 minus 80 right? This last worker, we weren't even hiring him before. So you can imagine we're not gonna hire him now when we're making even less money off him. 20 minus 80 That's negative 60. So notice what happens here. You might first instinct be, hey, we lose money on the first worker. It's negative 20 off the bat. We don't hire anybody, but that's wrong, right? Because we do start making money on the 2nd and 3rd worker, if you were gonna look at total profit, we would have total profit when we had the third worker, right? The first worker has negative 20 the second worker is 20 so they offset, it's like with two workers were breaking even, but that third worker does make us 60 more bucks, so we come out on top with three workers here, right? We don't want that fourth worker because we start losing money again, so we're gonna stop right here at three workers. So what has happened? The output price decreased, it decreased our marginal revenue product, and thus we hired less workers here. Alright, So that's how the output price can affect the demand for labor here. Alright, so let's go ahead and move on to the next video.
Shifts in Labor Demand:Technological Change (I)
Play a video:
Was this helpful?
Alright. So something else that can shift the demand for labor is changes in technology. Let's check those out. So technological change, it can either be a substitute for labor or what do you think? The other one is gonna be a compliment to labor? Right? So we talked about this before and product markets but it's gonna be a little different here. So let's check it out. A substitute technology. So this is something you're substituting for labor instead of using labor, You're gonna use this technology instead, right? It's gonna be cheaper than the labor. So this is a labor saving, we call it a labor saving technology and it's gonna shift the labor demand to the left right. We're gonna demand less labor because we're gonna use the technology instead. So it kind of goes like this, we've got a labor saving technology and it's cheaper to use the technology instead of hiring laborers. So we're gonna need less workers to maximize profit, right? That's gonna shift our demand to the left. So let's check out this example here about labor demand shifts. Alright. So the producers of really cool hats. Originally hired many laborers to customize their really cool hats. However, a new fashion forward robot can produce really cool hats more efficiently than the laborers. So what will happen to the demand for really cool hat laborers? Alright, so this isn't the demand for really cool hats. This is the demand for really cool hat laborers right? The quantity of laborers were gonna hire to produce these really cool hats. So right here, this is the same graph we're dealing with, right? Where we're gonna have wages w wages on the on the up down axis or Y. Axis and we're gonna have the quantity here on our X. Axis, right? And this is the quantity of laborers that we would hire. So if this was the original situation where we have this cell supply and this demand for labor, right? Well now there's this drop my notes. Now there's this uh this shift to the left for the demand for labor, right? Because now we're gonna use robots instead of hiring laborers. Well this is what's gonna happen, we're gonna take that demand curve shift to the left, just like we're used to. Right? So what's gonna happen here? We had an original wage up here, right? This was gonna be the original wage and this was the original quantity demanded, right? Or equilibrium quantity I should say quantity demanded and quality supply. Well now we have this shift and this is our new equilibrium right here, right? So what's gonna happen? Well we're gonna have a lower wage, right? The wage to it decreased and quantity to it also decreases here as well. Right? So we're gonna hire fewer workers. There's less demand for the labor. This looks like what we studied when we studied supply and demand, right? But now we're just thinking about demand for labor. Cool. So let's go on in the next video, let's talk about the complementary technologies. Alright let's do that. Now
Shifts in Labor Demand:Technological Change (II)
Play a video:
Was this helpful?
Alright so we just talked about substitute technologies. Now let's deal with the complementary technologies. So these technologies we're gonna say our labor augmenting. Okay so this is gonna when we say augmenting, it's gonna change the way that the laborers work, right? There's this new technology that's going to change how they work and essentially make them more productive. Alright. So it's gonna shift the labor demand to the right? And this is because we're gonna have higher mpl right? So we have this labor augmenting technology. Well there's gonna be more mpl, right? More marginal product of labor. Each labor is gonna is gonna be more productive and be able to add more mpl when we hire one more worker we're gonna get more out of them. Okay so since we're getting more mpl from each worker, what we're gonna need more workers to maximize our profit, right? Because each one is making more mpl you could imagine that we could hire more workers before reaching that M. P. M. R. P. Equals wage condition right? Where we stop hiring? Um So the labor augmenting technology, we're increasing productivity. Right? So that M. R. P. Is gonna go up. Okay so let's check this out. The producers of really cool hats. So this one's gonna be a little different notice how it changes the producers of really cool hats. Originally hired many laborers to customize their really cool hats. The invention of a futuristic needle allows workers to produce hats twice as fast, right? So notice compared to when we were talking about substitute, there was a fashion forward robot that was gonna replace the worker here. The worker is not replaced, right? It's the tools that they're using that are changing right before they had some different needle. Now they have some super needle that makes them work faster, so we can't get rid of the workers. We still need the worker to use the technology, but they're more productive, right? So since they're more productive, we're gonna have more demand for labor, because we're gonna have higher, higher mrp coming from each worker. So the demand for labor is going to shift to the right here. And we would have some situation, right? Same graph we're looking up above. We've got to supply a demand, this is our wage access, our quantity of workers access. And we had our original equilibrium right here, right? Where we had Q. one and wage one W. One. Well, let's shift to the right this time, right? The demands gonna shift to the right? And we would be somewhere say here, right? The demand shifts to the right there, and we've got a new equilibrium right here. So it's gonna happen. The quantity increases, right? And we also see the wage increase over here, right? Wages gonna increase in the equilibrium point as well. So just like we saw with a um product market, excuse me, just like we saw in product markets, we've just shifting curves and finding new equilibrium. We've done all this before, Right? So it's pretty simple, we're just applying it to a new topic. Cool. Let's move on to the next video.