18 Labor Markets

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CHAPTER OUTLINE

The Demand for Labor and the Marginal Product of Labor

Supply of Labor

Labor Market Issues

How Bad Is Labor Market Discrimination, or Can Lakisha Catch a Break?

Takeaway

A janitor in the United States earns about $10 an hour; a typical janitor in India earns less than $1 an hour. Why is there such a difference? Why does one person earn so much more than the other? After all, janitors in both countries do many of the same things: they clean windows and floors, scrub toilets, remove trash, and so forth.

If you think the differences in wages have to do with supply and demand, you are on the right track.

Wages are determined in the market for labor just like other prices are determined.

In this chapter, we look more deeply at the factors underlying the demand for labor and the supply of labor. A deeper understanding explains how wages are determined at a fundamental level, why most Americans earn so much by global standards, why education raises wages, whether and how much labor unions help workers, and how discrimination still shapes labor markets today.