Microeconomics › Section N · Labor markets and income › Topic N.1
The theory of labor markets
Why does a nurse earn more than a barista, and a backhoe operator more than a shovel hand? The theory of labour markets answers with a chain of multiplication: wages trace to what workers produce, what they produce traces to the tools and technology they work with, and what that output sells for. Labour demand is the demand for products, one step removed.
In this topic
- Where income comes from
- Marginal product of labour
- The demand for labour: VMPL
- Worked example: hiring at the going wage
- Derived demand
- Market power in the output market
- Worked example: the same firm with market power
- Do employers exploit labour?
- What sets the going wage?
- Common mistakes to avoid
- Key takeaways
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