Glossary
Complementary Resources
Inputs that are used together in the production process, so a change in the price or availability of one affects the demand for the other.
Example:
If the price of specialized graphic design software decreases, demand for graphic designers (who use the software) might increase, as they are complementary resources.
Education and Training (as determinant of labor supply)
The acquisition of knowledge and skills by individuals, which can increase the supply of qualified workers in specific fields.
Example:
Government funding for STEM programs in universities can boost the education and training levels of the workforce, increasing the supply of engineers and scientists.
Factor Demand (Labor Demand)
The quantity of a factor of production, typically labor, that firms are willing and able to hire at different wage rates.
Example:
A booming construction industry often leads to high labor demand for skilled carpenters and electricians.
Factor Market Equilibrium
The point in a factor market where the quantity of a factor supplied equals the quantity of that factor demanded, determining the market wage rate and quantity employed.
Example:
The prevailing salary for entry-level software developers in Silicon Valley is largely determined by the factor market equilibrium for tech talent.
Factor Markets
Markets where the services of factors of production (like labor, land, capital) are bought and sold, rather than the final goods and services.
Example:
When a tech company hires software engineers, they are participating in the factor market for labor.
Factor Supply (Labor Supply)
The quantity of a factor of production, typically labor, that resource owners are willing and able to offer for sale at different wage rates.
Example:
As the hourly wage for lifeguards increases during the summer, the labor supply of teenagers willing to work at the pool tends to rise.
Government Regulations (as determinant of labor supply)
Rules or laws imposed by the government that can affect the ease or difficulty of entering a profession, thereby influencing labor supply.
Example:
Stricter government regulations requiring extensive certifications for drone pilots could limit the number of new pilots entering the commercial drone industry, decreasing labor supply.
Immigration (as determinant of labor supply)
The movement of people into a country, which can increase the overall supply of labor in the receiving country's factor markets.
Example:
Increased immigration from countries with strong agricultural traditions can expand the pool of farm workers, shifting the labor supply curve to the right.
Inputs
The resources, also known as factors of production, that firms use in the production process to create goods and services.
Example:
For a car manufacturer, steel, rubber, machinery, and assembly line workers are all essential inputs.
Law of Demand (Labor)
A principle stating that, all else being equal, as the wage rate for labor increases, the quantity of labor demanded by firms will decrease.
Example:
If union negotiations result in a substantial wage hike for factory workers, the Law of Demand suggests the factory might automate more tasks to reduce its workforce.
Law of Supply (Labor)
A principle stating that, all else being equal, as the wage rate for labor increases, the quantity of labor supplied will also increase.
Example:
If a local restaurant offers significantly higher wages, the Law of Supply predicts more people will apply for kitchen staff positions.
Leisure Time (as determinant of labor supply)
The non-work time available to individuals, which can be chosen over working more hours, influencing an individual's willingness to supply labor.
Example:
If a society places a higher cultural value on leisure time and work-life balance, individuals might choose to work fewer hours or retire earlier, reducing the overall labor supply.
Product Demand (as determinant of labor demand)
The demand for the final good or service that labor helps produce, which directly influences the derived demand for that labor.
Example:
A sudden surge in the product demand for organic vegetables will lead to an increased demand for farm laborers who harvest them.
Productivity (of Labor)
The output produced per unit of labor input, reflecting how efficiently workers convert inputs into goods or services.
Example:
Introducing new, faster machinery in a factory can significantly increase the productivity of the assembly line workers, allowing them to produce more cars per hour.
Shortage of Labor
A situation that occurs when the quantity of labor demanded exceeds the quantity of labor supplied at a given wage rate, leading to unfilled job vacancies.
Example:
During a rapid economic expansion, many businesses might experience a shortage of labor as they struggle to find enough qualified workers to fill open positions.
Substitute Resources
Inputs that can be used in place of another input in the production process, meaning firms can switch between them based on cost.
Example:
If the cost of human customer service representatives rises sharply, a company might invest more in AI-powered chatbots as substitute resources.
Surplus of Labor
A situation that occurs when the quantity of labor supplied exceeds the quantity of labor demanded at a given wage rate, often resulting in unemployment.
Example:
If a city sets a minimum wage significantly above the market equilibrium, it can create a surplus of labor, leading to more people seeking jobs than there are available.
Wage Ceiling
A government-imposed maximum price that can be paid for labor, set below the equilibrium wage, which can lead to labor shortages.
Example:
Although rare in practice, a theoretical wage ceiling on professional athletes could lead to many talented players seeking opportunities in other countries.
Wage Floor (Minimum Wage)
A government-imposed minimum price that can be paid for labor, set above the equilibrium wage, intended to ensure a basic living standard.
Example:
The implementation of a new $15 per hour minimum wage might cause some small businesses to reduce their hiring or cut employee hours.
Wealth Effect (as determinant of labor supply)
The change in labor supply that occurs when an individual's wealth changes, often leading to a decrease in labor supplied if wealth increases.
Example:
After inheriting a large sum of money, an individual might experience a wealth effect, choosing to work part-time instead of full-time, or even retiring early.