The labor market under conditions of perfect and imperfect competition. The supply of labor for an enterprise under conditions of perfect competition In the labor market under conditions of perfect competition

Perfect competition in the market labor resources assumes the presence of four main features:

1) the presentation of demand for a certain type of labor (i.e., for workers of a specific qualification and profession) by a sufficiently large number of firms competing with each other;

2) the offer of their labor by all employees of the same qualification and profession (i.e., members of a certain non-competing group) independently of each other;

3) the absence of any one association from the side as buyers of labor services ( monopsony ) and their sellers ( monopoly );

4) the objective impossibility of demand agents (firms) and supply agents (employees) to establish control over the market price of labor, i.e., to forcefully dictate the level wages .

Consider first the dynamics demand And suggestions labor market perfect competition in relation to a single firm (Fig. 11.8).

Rice. 11.8. Labor supply and demand for an individual firm under perfect competition

The graph shows: under perfect competition, firstly, the supply of labor is absolutely elastic (straight line S L is parallel to the x-axis) and, secondly, marginal cost on the labor resource (MRC) are constant and equal to the price of labor, i.e., the wage rate (W 0). The reasons for this type of supply schedule are obvious: a ¾ perfect competitor is so small that changes in its demand for labor have no effect on the market. No matter how many workers she hires, she will have to pay them the same ¾ wages already established in the market ¾ wages and, therefore, incur the same marginal costs with each new hire, i.e. SL \u003d MRC \u003d W 0 .

It is beneficial for the firm to increase hiring of workers up to the number L 0 corresponding to the point of intersection of the supply and demand lines (B), when the value of the marginal labor cost (MRC) will be equal to marginal money product (MRP). The shaded area of the figure OABL O corresponds to total income firm, where one of its parts (the area of the rectangle OW O BL O) forms its total wage costs (the wage rate W 0 is multiplied by the number employees L O), and the other (the area of the triangle W 0 AB) acts as a net income (profit) from the use of labor resources.

When moving from a single firm to an industry that represents the entire set of firms, the graph of labor supply and demand will take a different form (Fig. 11.9).

Rice. 11.9. Labor supply and demand for an industry under perfect competition

Here you can see the intersection of differently directed supply and demand curves at the equilibrium point, where the equilibrium wage rate (W O) and the equilibrium number of employed workers (L O) are formed. It is this price of labor that is formed at the level of the industry in relation to the firm that acts as a market reality, or a given, which the firm has to accept resignedly.

Under conditions of perfect competition, the action of the classical laws of self-regulation of the market is directly manifested. At the equilibrium point, both excess and deficit are equally absent. work force(demand is exactly equal to supply). And this means that there is no unemployment with its negative social consequences, nor the shortage of workers, which leads to a decrease in labor motivation, a decrease in the exactingness of company management towards personnel, etc. The equilibrium is stable: feedback dampens random deviations from it. Thus, an increase in the price of labor (on the graph to the level W 1) leads to an increase in supply (up to the value L S) and a reduction in the demand for labor (up to the value L D). There is an excess supply of labor (L S > L D). Some of those who want to go to work do not find vacancies, competition begins, during which workers agree to lower wages, just to be hired. Gradually, the price of labor is reduced to its original level.

Let us especially emphasize that equilibrium is achieved without any external (for example, state) interventions: each firm hires exactly as many workers as it needs to maximize profits, and therefore is not interested in breaking it. In conditions imperfect competition this does not always happen. In real business practice, labor market (as, by the way, in the market of any other product) strict observance of all principles of free competition is rarely observed. Nevertheless, labor markets close to perfect exist, including in our country.

Demand for labor is the number of workers that manufacturers are willing to hire at a given moment at a given wage level.

The main feature of the demand for labor is that it is derivative, i.e. the employer does not need labor power in itself, but in order to produce specific goods and services. Therefore, the demand for labor is determined by the situation in the commodity market and is sensitive to the growth or fall in consumer demand and to changes in production technologies. Since labor is not the only factor of production, the growth in it also depends on the state of the capital market.

Under perfect competition, the technology, the amount of capital employed, and its price are fixed. Thus, the employer, hiring or firing workers, is guided by the main criterion for the activity of a private company - profit maximization:

p = pY – wL– rK > max (p, w, r, K = const),

where p - price index; Y - volume of production in natural terms; w - salary level; L is the volume of applied labor; r is the price of capital; K - the amount of capital.

That is, MP L p = w, or MP L = w / p; MP L is the marginal product of labor in physical terms (the number of units of output produced by the last unit of labor hired).

The marginal product in physical terms, multiplied by the price of the good p (p = const under perfect competition), is equal to MRP L . This is the marginal product in value terms: MRP L = MP L · MR = MP L · p, because each additional unit of a product is sold at a price p (under perfect competition, the marginal revenue from each subsequent unit of output MR is constant and equal to p). This means that it is beneficial for the entrepreneur to increase the amount of labor force used until the ratio MRP L = w is fulfilled (as you can see, this is a well-known condition for the equality of marginal income to marginal costs MRP = MC, since in conditions of perfect competition each next unit of labor will be cost the employer exactly w).

According to the law ultimate performance factors, the dependence of the marginal product of labor on the number of employees employed can be represented by the MRP L curve (Fig. 8.10).

Rice. 8.10. The dependence of the marginal product of labor on the number of employees employed

Usually, in theoretical models of the labor market, only that part of the MRP L curve that has a negative slope is used as a demand curve, i.e. characterizes firms that have already taken a stable position in the market and have passed that short-term stage when each subsequent employee is more productive than the previous one. Thus, in reality, taking into account the law of decreasing marginal utility of production factors for most firms with a fixed amount of capital, the labor of each new employee is less and less productive, and the standard line of the labor demand function DL (DL / w = MRP L = MP L p) the side of an individual competing firm always has a negative slope (Fig. 8.11).

Rice. 8.11. Demand for labor by an individual firm under perfect competition

At the equilibrium level of wages given by the market, w e, the optimal amount of labor resources for the employer is L e. At the intersection point of w e and L e, the necessary equality is achieved: w e = MRP L .

In modern conditions, the equation of demand of a competitive firm for labor will be adjusted by the action of non-market factors (for example, government intervention or the activities of trade unions).

A firm that buys labor in a competitive market, which is a monopolist in a product market, faces a sloping demand curve for its products: by producing more goods and services, it is forced to lower the price, and (if it is a non-discriminatory monopoly) the price decreases for all products. And this means that the marginal revenue MR from each next unit of labor sold will be lower than the price of this unit, therefore, the marginal revenue curve MRP = MP L MR will have a steeper slope compared to the demand curve DL defined by w = MP L p. That is, for a commodity monopoly MP L MR< MP L · p при любом уровне занятости (рис. 8.12).

Rice. 8.12. Demand for labor from a commodity monopoly

A monopoly firm, like a competing firm, guided by the principle of profit maximization, hires workers at a given wage level w e . In this case, the same relation MRP L = MC L must also hold for a monopoly: MP L = MR = w e . Thus, the result of introducing a monopoly on the goods market will be a decrease in employment at an equilibrium wage level w e given by a competitive labor market, the number of employed workers will decrease from L e to L m .

Thus, once again the inefficiency of the monopoly is confirmed not only in the sphere of production (decrease in output and rise in prices), but also in relation to employment in the labor market.

There are cases in the economy when a firm acts as practically the only employer of labor on a this market labor: this situation is typical for small local markets (for example, the only hospital or school in a small remote town). In such a case, the employer is called a monopsonist.

The difference between a monopsony firm and a competing firm is that it faces a sloping supply curve in the labor market (as opposed to the labor supply curve for a competing firm, whose supply curve is a horizontal straight line w = w e). Thus, by hiring an additional worker, the firm is forced to raise his wages, and if this is not a discriminatory monopsony, it will have to add the salary of all previously hired. Therefore, additional costs MC L will always be higher than wages w, and the marginal cost curve in this case will be located above the labor supply curve S L (Fig. 8.13).

Rice. 8.13. Labor supply and marginal cost for monopsony

The monopsonist-employer solves for himself the same problem of profit maximization, but for him this problem turns out to be more difficult, because the level of wages depends on the volume of employment. As shown in fig. 8.14, a monopsonist firm, seeking to fulfill " Golden Rule» equality of marginal cost to marginal income, will hire L m workers and will pay them the same salary w m (in accordance with the labor supply curve).

Rice. 8.14. Demand for labor from monopsony

If there were no monopsony in this market, competitive equilibrium would be reached at point A. It is obvious that both the level of employment and the salary of a monopsonist are lower than the corresponding values for competitive market. Thus, monopsony, like any monopoly, is economically inefficient. There is a redistribution of the “surpluses” of the seller and the buyer (employees and employer): the monopsonist receives CGFB instead of DGA profit, employees receive HCB instead of HAD. The direct damage to workers is obvious, but, in addition, monopsony also reduces the efficiency of the economy as a whole: the BFA triangle represents the so-called "dead weight losses", and workers who lost their jobs (L e - L m) could produce products in the amount of L m FAL e. The result is a drop in employment, wages, and production volumes.

In the long term, firms can change technology, buy more advanced equipment, modernize production, in a word, change the amount of capital used. Suppose a firm changes the amount of capital under perfect competition, i.e. price p, salary w and bank rate r are given. Maximizing profit, the entrepreneur tries to increase output as much as possible at fixed production costs (or minimize costs at a certain level of output), which can be expressed as the ratio MP L / w = MP k / r.

By changing the ratio K/L, the employer is guided by the ratio of the marginal utility of these two factors of production, comparing it with the proportion w/r, i.e. marginal costs. Therefore, any changes in the prices of labor or capital, while maintaining their previous productivity, will necessarily lead to an increase or decrease in employment. Or, with an increase in the productivity of one of the factors of production, the volume of demand for labor will change if the prices of the factors remain unchanged.

Thus, in the long run, a substitution effect can be observed, i.e. an entrepreneur replaces a resource that has risen in price with one whose price is unchanged. Thus, when wages rise, it becomes profitable to replace labor with capital, which means that the substitution effect reduces employment. Therefore, in the graph, the demand curve for labor in the long run has a steeper slope with respect to the horizontal axis. In the short run, when an entrepreneur cannot replace labor with capital, employment does not decrease so sharply with an increase in wages (only economies of scale act), in the long run, the possibility of such a replacement appears and the employer, in an effort to maximize profits, reduces the amount of labor, replacing it with capital ( Fig. 8.15).

Rice. 8.15. Demand for labor in the long run (a) and short run (b)

If the simplest models show the use of only two factors by a firm in production - labor and capital, then in reality there may be more production factors, for example, land, scientific and technical progress. If we talk about the labor market, many employers use workers of different skill levels, which can be reflected in the construction of a labor demand model. If high-skilled and low-skilled workers are employed in production, these two groups are considered as two different factors. Maximizing profit, the employer will use the labor of both categories in such quantities that the proportion MPL 1 / MPL 2 = w 1 / w 2 is fulfilled, i.e. the ratio of the marginal products of these two categories must equal the ratio of their wages. It is obvious that a more productive and “cheaper” worker is more attractive to the employer, but one category cannot always be replaced by another: such interchange is determined by many factors of production (for example, technological process). If workers are fungible, then an increase in wages in one group will necessarily lead to an increase in the demand for labor in another group. In this case, the factors L 1 and L 2 are substitutes. If the increased wages of workers in one group lead to a fall in employment in another, then such groups are complementary (that is, in response to an increase in the prices of one factor, the demand for both falls at once).

Market demand for labor. The market demand for labor does not consist of the sum total of the labor demands of individual firms. Let's turn to the graph (Figure 8.16): graph (a) shows a typical labor demand curve for any of the n th number of firms; it is given by a function of the form w = MP L · p; p - the price of goods - is considered given for a competitive market.

Rice. 8.16. Construction of the demand curve for labor

Assume that the equilibrium wage is initially set at w 1 . Demand n-th firm for labor at such a salary is equal to L 1i , which means that the total demand for labor will be equal to the sum of all L 1i for n firms.

Graph (b) shows the horizontal summation of all points similar to point B for firm A. Point C thus belongs to the market demand curve for labor. What happens when wages are reduced to the level w 2 ?

A fall in wages at all enterprises in the industry will simultaneously lead to a decrease in production costs and, as a result, in conditions of free competition will cause a fall in the price of goods (p ® p¢). This means that the labor demand curve for each firm in the industry will shift. As a result, the change in employment caused by a fall in wages from w 1 to w 2 will not be as significant for each firm as at a constant price level p. For individual firm A, as can be seen from the graph, the number of employees will grow to the level of L 3 , but not to L 2 , as one might expect. Accordingly, performing horizontal summation at the wage level w 2 , we must add up all the values of L 3 . Thus, the slope of the total market demand curve for labor D L ¢ will be greater than when simply summing the individual curves of the firms of employers D L . At the same time, it is clear that the market demand curve for labor has the same features as individual demand curves: it always has a negative slope, i.e. As wages rise, employment will fall, and vice versa.

Elasticity of demand for labor and the laws of production demand. An important indicator in assessing the demand for labor is its wage elasticity, or, as it is called, its own elasticity of demand. The elasticity coefficient shows how much the demand for labor changes with a 1% change in wages:

That is, with an increase in wages, the required number of man-hours always decreases, and vice versa, with a fall in wages, it grows; Obviously, the elasticity coefficient is always negative. More precisely, it takes values from zero (then they say that demand is absolutely inelastic, and the graph of the demand function looks like a vertical line) to minus infinity (in this case, the graph takes the form of a horizontal straight line, then they say about the absolute elasticity of demand for labor). If the modulo elasticity coefficient is greater than one, demand is called elastic; if it is less than one, demand is called inelastic:

> 1 - elastic demand,< 1 – неэластичный спрос.

It should be noted that elasticity is always measured in the vicinity of a certain specific point belonging to the labor demand curve, and at different points this indicator will not be the same. When conducting economic research, scientists are interested in a particular point and its surroundings, for example market equilibrium violated as a result of the activities of trade unions or as a result of state intervention. It is necessary to analyze the consequences, the reaction of workers and employers, employment and wages. In this case, it is precisely the estimates of the elasticity of demand in the vicinity of the equilibrium point that are carried out; talking about the elasticity of the entire demand curve is incorrect.

The elasticity of demand for labor with respect to wages is determined by the four laws of derived demand, or, as they are also called, the Hicks-Marshall laws. Thus, the wage elasticity of demand for labor will be greater than:

- more elastic demand for final products;

– higher elasticity of substitution of labor by capital;

- a larger share of labor in total production costs;

higher elasticity of supply of other factors of production.

These laws explain why unions are always stronger in sectors of the economy where the demand for labor is less elastic.

In addition to the intrinsic elasticity coefficient, economic studies also widely use indicators of the so-called cross elasticity of demand for labor. For example, the coefficient of elasticity of demand for labor with respect to the price of capital is:

In contrast to the intrinsic elasticity of demand for labor, this coefficient, which shows how sensitive the demand for labor is to the price of capital, can take both positive and negative values. It depends on whether labor and capital in a given production are factors that complement or replace each other (complements or substitutes):

> 0 - substitute factors,

< 0 - факторы–комплементы.

Studies show that in most cases, simple, low-skilled labor and capital act as substitutes, while highly skilled labor, on the contrary, complements capital. It is important to understand that the value of the cross elasticity coefficient depends on which effect is stronger when prices rise - the effect of scale of production or the substitution effect. For example, an increase in the wages of low-skilled workers will cause a tendency for them to be replaced by highly skilled workers (if the wages of the latter and their productivity are unchanged). Then the cost of production will rise and output will fall. This means that as a result of the substitution effect, the employment of more skilled workers should increase, and as a result of the scale effect, it should decrease. In this case, the result is ambiguous, which is why the cross elasticity coefficients can have different signs.

If it is necessary to know how the price of one factor of production changes when the quantity of another factor changes, one speaks of the cross elasticity of factor prices. Consider the formula:

where ¶w j / w is the percentage of the salary of another category of workers; ¶L j / L j - percentage change in volume production factor j.

Knowing this indicator, as in the previous case, gives us an idea of whether the factors are substitutes or complements: if p ij< 0 - факторы-комплементы, p ij >0 - substitute factors.

Estimates of the cross elasticity of wages for certain categories of workers are very important, because allow answering the question of how the level of immigration that countries periodically experience affects the standard of living of the local population. There are two polar views on this problem: on the one hand, the flow of immigrants who agree to perform work that is unattractive to the local population for lower wages frees more skilled workers for more productive work, where they can fully use their knowledge and skills; in this case, the flow of immigrants increases the productivity of the local labor force, and these categories of workers will be complements in the labor market. However, according to another point of view, the impact of immigrants on the labor markets of the local labor force is negative - wages are falling, unemployment is growing. The standard of living is falling; the cross elasticity of the wages of local workers is negative, and immigrants and local workers act as substitute factors. According to recent studies and statistics, there is no significant reduction in wages in the market of host countries. This is due to the mobility of the labor force within the country.

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A. Are trade union activities beneficial to the functioning of the labor market?

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The demand for a factor (labor) is a derivative - it depends on the demand for the product produced in the industry.

In a competitive labor market, the equilibrium wage and the level of employment are determined by the intersection point of the supply and demand curves (Fig.

Rice. 8.2. Equilibrium in a competitive labor market

Labor supply and labor demand of an individual competitive firm

For an individual firm, the market wage rate acts as a horizontal direct labor supply (Fig. 8.3).

Rice. 8.3. Equilibrium in the labor market for an individual firm

Since the wage rate for a particular firm hiring workers in the labor market acts as a given value, the supply curve S l = MRC l is perfectly elastic. Here, the MRP l curve acts as its labor demand curve.

The firm will get the maximum profit if it hires such a number of employees that MRP l = MRC l .

The firm hires new workers only until its marginal revenue from the product (MRP l) equals the marginal cost of the resource (MRC l), in this case, labor.

Determinants of labor demand

1. Changes in the demand for a product: other things being equal, an increase in the demand for a product increases the demand for the resources used to produce that product, while a decrease in the demand for a product leads to a decrease in the demand for the resources required to produce it.

2. Changes in productivity: ceteris paribus, a change in the productivity of resources also causes a change in the demand for a resource, and the derivative change goes in the same direction as the original one that caused it. Performance can be affected by:

The amount of other resources used;

Technical progress;

Improving the quality of resources.

3. Changes in the prices of other resources.

If the substitution effect outweighs the volume effect, then a change in the price of a resource causes the same change in the demand for the replacement resource.

If the output effect exceeds the substitution effect, then a change in the price of a resource causes an opposite change in the demand for the replacement resource.

The marginal profitability of a product by factor (labor), or the marginal factor revenue is additional income, which the company will receive from the use of one more, additional, resource unit:

This value determines the demand for labor.

The market demand for labor is the sum of the sectoral demands of various sectors of the economy.

The elasticity of market (industry) demand with respect to the wage rate is determined by the formula

The supply of labor is determined by the wage rate, which is equal to the marginal cost of labor (the extra cost to hire an extra unit of labor). The firm, maximizing its profits, will hire new workers until each new employee brings additional revenue in excess of his wage rate, i.e. MRP l > w and MRP l = MRC l .

The profit will be maximum under the condition of MRP l = w.

The hiring decision will be determined by the balance between the demand for labor and the supply of labor at given market wage rates.

The supply of labor for an enterprise in conditions of perfect competition

In a perfectly competitive labor market, an enterprise is one of many buyers of labor services offered by many sellers (employees). Therefore, an individual enterprise cannot influence the price of labor and perceives it as determined by the market.

This means that the labor supply curve £, in a perfectly competitive market, has the form of a horizontal line passing through the market wage rate, since the supply of labor under these conditions is absolutely price elastic (Fig. 13.5).

In a perfectly competitive labor market, the average cost of labor (ACL) and the marginal cost of an additional unit of labor coincide with a constant wage rate. At a constant wage rate, a company can hire as many workers as

Rice. 13.5. The supply curve for a firm in a perfectly competitive labor market

how much he needs. The same applies to a particular industry, if this industry is not the main employer in the region or in a particular specialty. Although for a particular industry, the horizontal SL curve is the exception rather than the rule.

Labor supply for the industry

As a rule, large sectors of the economy are the main consumers of hired labor of a certain qualification or specialty. For example, the coal industry is the only employer for miners, while the metallurgical industry is in demand for steelmakers. Under such conditions, the labor supply curve will have a positive (ascending) slope (Fig. 13.6).

The reasons for the upward slope of the supply curve of the industry:

1) the excess of the strength of the effect of replacing free time with work (labor) over the effect of income due to

Fig, 13.6. Industry labor supply curve

change (increase) in the wage rate, which is manifested in the fact that as the wage rate increases, the supply of labor increases not only from the side of those already employed, but also from those who refused to work at a lower wage rate (students, students, pensioners , women who look after children, the elderly, the sick, etc.);

2) industries with a high wage rate become attractive to workers in other industries with a lower wage. Insofar as total strength the economically active population (labor force) in the short term is unchanged, the "overflow" of workers in high-paying industries leads to a shortage of wage labor compared to the amount of capital in industries with low wages. The consequence of this is an increase in the marginal product of labor in low-paid industries, which forces enterprises in these industries to raise wages;
3) increase opportunity cost use of labor for workers in other industries.

Economy-wide labor supply

World experience shows that an increase in the wage rate causes an increase in labor supply, i.e., the SL curve for the economy as a whole has a positive (ascending) slope. If we assume that the increase in the wage rate will have a steady upward trend in the future, then, under other unchanged conditions, the supply curve would look like SL, (Fig. 13.4, b), since the increase in wages by several times with a constant (saturated) the volume of consumption of economic goods would lead to a reduction in work and an increase in free time. But the scientific and technical progress during this time, most likely, will offer many new economic benefits, the existence of which we had no idea. In order to obtain these new benefits, wage-workers will again increase the supply of labor.

The supply of labor at the level of the economic system as a whole is the subject of study of macroeconomics.

The problem of resource pricing is a microeconomic problem. So let's go back to the micro level.

Market equilibrium and enterprise equilibrium in a competitive labor market

Market equilibrium in the labor market is established at the point of intersection of the curves of market demand for labor (DL) and market supply of labor (SL) (Fig. 13.7, a).

From fig. 13.7 and it is visible that the equilibrium point E corresponds to the equilibrium wage rate ω and the equilibrium level of employment L. Equilibrium in fig. 13.7, b reflects the state of full and effective employment.

Full employment- a situation in the economy in which everyone who wants to offer a certain amount of labor at an equilibrium price (wage rate) established by the labor market can realize their desires. Even if the labor force exceeds the equilibrium volume of employment V, full employment will take place in the economy. This is explained by the fact that an excess of the labor force in excess of L will form a natural unemployment rate, which means that the number of owners of labor resources who remain voluntarily unemployed do not want to offer more labor than L at the equilibrium rate ω.

efficient in volume L, employment is because at this level of employment, the marginal product of labor is equal to the marginal cost of the last unit of labor, i.e. MRPL = MRCL.

It is clear that the demand of an individual enterprise in the labor market is insignificant compared to the market demand. Therefore, since neither the enterprise nor the employee can influence the equilibrium wage rate ω, they must adapt to it.

As mentioned above, in a competitive market, the labor supply curve L for the enterprise has the form of a horizontal line passing through the equilibrium wage rate, which, in turn, is the result of the interaction of the curves SL and DL.

The equilibrium volume of labor of the enterprise (Fig. 13.7, b) is determined by the optimization rule, which for competitive enterprise has the form VMPL = MRPL = ω.

As can be seen from Figure 13.7, b, if the revenue curve from the sale of the marginal product of labor (MRPL) is above the marginal labor cost curve, the enterprise is interested in increasing the amount of hired labor, which will provide it with an increase in profit, since each additional unit of labor will bring more income, than costs.

If the DL = MRPL curve is below the SL -MRCL curve, then the cost of the enterprise for each additional unit of labor will exceed the increase in income from the use of an additional unit of labor. Under these conditions, the enterprise will lay off workers until it reaches an equilibrium state at the point of intersection of the SL and DL curves, where MRCL = MRPL.

Equilibrium in the sectoral labor market. The role of sectoral labor markets in the economy

Equilibrium in sectoral labor markets is established at the point of intersection of sectoral labor demand curves DL and labor supply SL.

Due to the fact that some industries are developing rapidly, while others are slower or are in decline, it is necessary to consider the mechanism of the "transfusion" of employees from one industry to another and understand the consequences of such changes in the structure of employment.

- firstly, the labor market connects and makes interdependent even those sectors of the economy that are not technologically interconnected;
- secondly, an increase in wages in some sectors leads in the short term to a decrease in employment and output in other sectors;
- thirdly, the transition of employees from one industry to another becomes possible due to the mobility of the "labor" resource.

A perfectly competitive labor market has the following characteristics:

in every industry there is a significant number of firms competing with each other for the right to hire one or another specialist;
there are a large number of specialists of a certain profession with equal qualifications, and each of them, independently of the others, offers their services on the labor market;
neither the individual firm nor the individual worker is in a position to influence the level of wages established in the industry.

Based on the general patterns of demand for a resource, under conditions of perfect competition, a firm will present a demand for a resource until the value marginal product in monetary terms the unit of labor she employs is not equal to at the cost of labor those. until the equality

P l =MRP l.

For each firm, the descending part of the curve MRP is the demand curve.

The demand curve for labor from the entire industry is the result of the horizontal summation of the demand curves of individual firms. This means that the values of the magnitude of individual demand are summed up at the same price values.

By definition, the supply curve reflects the relationship between the price and quantity of a good that will be offered in the market. For a perfectly competitive labor market, each point on the labor supply curve in the industry indicates how much remuneration must be paid. specific employee to offer his services to the industry. Under perfect competition, all points on the supply curve correspond to the cost to the whole society of hiring an additional worker in this industry, or, in other words, industry marginal cost of labor as a factor of production (MRC).

Therefore, in conditions of perfect competition in the labor market in this industry, equilibrium wage rate (W) And the equilibrium volume of hired labor resources, determined by the intersection point of the sectoral demand curve for labor (curve MRP) and the labor supply curve (curve MRC):

MRP = MRC.

This equality is a condition for maximizing profits from the use of labor as a factor of production. This situation is clearly shown in Fig. 15.2.

Rice. 15.2.

Each firm in an industry will hire workers based on the industry's wage rate.

Differences in wages also play a significant role in market conditions. elasticity of labor supply for different categories of workers: the supply of skilled labor is less elastic than the supply of unskilled labor. The more skilled labor is, the less elastic its supply becomes and the supply curve will have a steeper character, and, consequently, the equilibrium wage level will be higher.

Demand has a similar effect on the wage rate: when demand increases and the curve shifts upward to the right, the wage rate rises. When demand declines, there are objective conditions for lowering wages.

In addition to market factors, there are non-market factors that affect the level of wages. These include regional differences and state regulation minimum wage, working hours, overtime work, age restrictions, etc.

Labor market in conditions of imperfect competition

As mentioned above, the labor market can be monopolized both on the demand side and on the supply side. Consider first an imperfectly competitive labor market that is monopolized on the demand side.

Monopsony, or a labor market in which a single employer of labor operates, arises under the following conditions:

a) on the labor market interact, on the one hand, a significant number of skilled workers who are not united in a trade union, and on the other hand, either one large monopsonist firm or several firms united in one group and acting as a single employer of labor;
b) a given firm (group of firms) hires the bulk of the total number of specialists in a particular profession;
c) this type of labor does not have high mobility (for example, due to certain social conditions, geographical disunity, objective restrictions on obtaining new specialty etc.);
d) the monopsonist firm itself sets the wage rate, and the workers are forced to either agree with such a rate or look for another job.

The labor market with elements of monopsony is not uncommon. Such situations often develop in small settlements where there is only one large firm - the employer of labor. For example, it may be a small city with one city-forming enterprise, and it is usually referred to as monocity.

What is the peculiarity of monopsony and what will it give to entrepreneurs? In a perfectly competitive labor market, entrepreneurs have wide choose specialists, labor mobility is absolute, any firm hires workers at a constant price, and the labor supply curve in the industry reflects the marginal cost of additional resource (labor) attraction.

Under monopsony conditions, the monopsonist firm represents the entire industry, so the labor demand curves for the firm and the industry coincide. In this case, for an individual monopsonist firm, the labor supply curve shows not the marginal, but the average costs of hiring labor, i.e. for monopsonist the labor supply curve is the average cost curve of a resource (ARC), but not limiting.

Since the labor supply curve for an industry is ascending, since attracting an additional worker from another industry requires an increase in wages for this worker, then for a monopsonist firm, the average resource costs increase.

This means that for her the value of the marginal cost of hiring labor exceeds the average cost (wages).

Example. If the monopsonist firm hires N 1 = 4000 wage workers W 1, = 400 rubles, then hire ( N 1 + 1)th worker at the rate W 2 = 410 rubles. will mean that she must pay the same rate to already hired workers, otherwise labor conflicts await her. Therefore, the marginal cost for a monopsonist firm to hire ( N 1 + 1)-th worker will amount not to 410 rubles, but to 40,410 rubles. (10 rubles 4000 - an addition to already hired N 1 = = 4000 workers, plus 410 rubles paid ( N 1 + 1)th worker).

In view of the foregoing, we can conclude that the marginal cost curve for a monopsonist firm passes above the labor supply curve.

But any firm maximizes profits when it equalizes the marginal revenue generated by hiring an additional unit of a resource with the marginal (rather than average) cost of the resource. Under monopsony conditions, this means that the equilibrium values of wages W M and the number of employed workers N M of the monopsonist firm differ from the values of W) and N x, established under a perfectly competitive labor market (Fig. 15.3).

Rice. 15.3.

In a perfectly competitive labor market, the equilibrium values W x and N 1 correspond to a point E x intersection of labor demand curves D and job offers S for the industry.

If monopsony occurs in the labor market, then the supply curve for the industry turns into the supply curve of the monopsonist firm and reflects the firm's average labor costs, i.e. the level of wages it must pay to each worker. The monopsonist firm equalizes the values MRP And MRC at the point E M, hiring N M workers and paying them a wage rate W M.

Note that, under monopsony conditions, the curve D is not a labor demand curve, since for a monopsonist firm impossible to draw a demand curve(similar to the fact that for a monopoly it is impossible to construct a supply curve).

As follows from Fig. 15.3, a monopsonist will always hire fewer workers ( N M < N 1) and pay them lower wages ( W M< W 1) than in a perfectly competitive labor market.

Let us evaluate the consequences of monopsonization of the labor market from the point of view of the monopsonist firm, workers and society as a whole. Hiring N M workers, the firm, if it operated in conditions of perfect competition, had to pay workers a wage rate equal to ; total payments to workers (the firm's total cost of hiring labor) would then be determined by the area of the rectangle. Setting the rate W M, the firm potentially "wins back" from the workers a rectangle that goes to pay for other factors of production (profit, interest, rent).

Thus, the monopsonist firm increases its profits. For workers, the emergence of monopsony will result in a loss N 1–N M jobs and wage cuts since W 1 to W M. Because N 1 –N M workers will not be employed in the industry, then from the point of view of society as a whole, the losses will be the area of the triangle IU m E 1.

Union Models. Another variant of monopolization of the labor market is a monopoly on the supply side, when a strong trade union is created in the industry, which becomes a monopoly "seller" of labor to entrepreneurs.

Consider first a simpler model where a union in an industry is opposed by many non-cooperative firms.

Trade unions solve many issues related to the protection of the rights of their members, but still the main task of the trade union is to increase the wage rate. To imagine how a union achieves higher wages, consider a situation typical of a perfectly competitive labor market (Figure 15.4).

In a perfectly competitive labor market, the equilibrium wage rate is W 1 for which the industry is hired N 1 workers.

If the trade union unites only qualified specialists and acts united group, "selling" the labor of its members, then we can consider this situation as a classic monopoly. The industry demand curve then becomes the average revenue curve for the union ( ARP), and its marginal revenue curve ( MRP) passes below the curve D.

Dot T curve intersections MRC And MRP will determine the number N 2 union members hired by the industry at the wage rate W 2. Under conditions of constant demand for labor in the industry, a decrease in the number of employees is tantamount to a reduction in labor supply.

Rice. 15.4.

It should be noted that in developed countries the method of raising wages by narrowing the supply is quite often used by trade unions. This is achieved in many ways, for example, by passing legislation introducing special licenses to engage in a certain type of activity. professional activity(physicians, lawyers) that create other barriers to entry into the industry (the need for retraining, license fees, passing qualifying exams, etc.). In recent years, this process can be periodically observed even in the developed economies of Europe, where there are strong closed trade unions.

A slightly different situation will develop in the labor market if the trade union unites all workers in the industry, from highly qualified to low-skilled. As a rule, in this case, the union resorts to the method of establishing a minimum wage. W 3 above equilibrium W 1 by threatening to go on strike. If employers agree to a wage rate at the level W 3, then formally for them the labor supply curve turns into a horizontal line W 3V, those. the supply of labor becomes perfectly elastic up to the point v. If the demand for labor expands further, then the hiring of workers will N V should entail an increase in wages. Dot E 3 intersection of labor demand and supply curves for the industry will determine the number of employees N 3. At the same time, in fig. 15.4 values W 2 and W 3 are chosen arbitrarily for clarity of presentation.

The fact that raising wages by reducing the supply of labor leads to a reduction in employment and the potential for unemployment is a matter of concern for trade unions.

More effective way, leading to both wage growth and employment growth, is expansion of the demand for labor. This can be achieved if:

a) the demand for goods manufactured in the industry increases, i.e. using this resource (labor);
b) labor productivity in the industry increases;
c) prices for substitute resources rise.

Trade unions can solve the first problem, for example, by using advertisements for the products of their industry. The solution of the second task is achievable with appropriate agreements with employers. Raising the price of substitute inputs can be achieved by supporting the struggle to raise the minimum wage in industries employing workers who are ready to potentially replace workers in this industry. However, the ability of trade unions to increase the demand for labor is limited, so trade unions more often resort to reducing the supply of labor in order to increase wages.

The negative effect of wage increases, i.e. reduction in the number of people employed in the industry, can be reduced if the demand for labor becomes less elastic. The lower the elasticity of demand for labor, the smaller the decrease in employment in the industry with the same increase in wages. The elasticity of demand for labor depends on the availability of substitute resources. If the union is powerful enough, it may resist the use of resources that replace labor.

Strictly speaking, the introduction of a minimum wage has a similar effect on the labor market. W min on state level: by analogy with the "floor" of prices in the commodity market. And in this case, a part of the country's able-bodied population, primarily unskilled workers who agree to offer their labor at wage rates below the statutory minimum, will be left out of aggregate employment. W min. In an effort to reduce unemployment, the state will act in the same way:

first, to initiate an increase in the demand for labor (for example, in many countries government programs job creation);
second, seek to reduce the supply of labor: prohibit the use of child labor, reduce duration working week, lower the minimum age and length of service for retirement, etc.

Double monopoly in the labor market. A unique situation may also arise in the labor market, when a single trade union (a monopolist - the seller of labor), uniting workers in the industry, is opposed by a monopsonist firm (buyer of labor).

In other words, the monopoly of the supply of labor represented by the trade unions faces the monopoly of the demand for labor represented by the monopsonist firm. Since the main task of the trade union will be the desire to increase wages, and the monopsonist firm, having market power, sets wages below the equilibrium, then the real level of wages will be determined by the degree of monopoly power of the trade union and monopsony.

A strong, organized trade union, with the support of other trade unions, is able to achieve a wage level that exceeds the monopsonistic and even equilibrium levels. On the contrary, a large monopsonist firm in the conditions of a divided labor movement is able to reduce wage rates below the equilibrium one. As a rule, under conditions of dual monopoly, trade unions and employers seek to conclude collective agreements that represent a mutual compromise.

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