Key Concepts in Labor Economics and Land Economics
Key Concepts in Labor and Land Economics
Value Added: The difference between the value of goods produced and the cost of raw materials and intermediate goods used to produce them.
Derived Demand: The amount that employers are willing to pay for factors or their services, such as purchasing a machine or leasing land for a specified period.
Cost-Reducing Business Strategy: A company chooses the combination of factors that achieves the lowest possible cost for a specific product.
Salary: All income received by workers in cash or in kind for providing employment services. These wages are determined in a market by the joint action of supply and demand.
Labor Demand: The number of people companies are willing to hire at various wage levels.
Factors Influencing Labor Demand:
- Primarily the level of wages. Higher wages reduce labor demand because hiring becomes more expensive.
- The productivity of labor. Higher productivity can offset higher wages. A worker with a higher wage per working day may represent a lower cost per unit of output due to their increased productivity.
Labor Supply: The number of people willing to offer their time to do a job, based on the wage level. Participation Rate: The percentage of people of working age who are employed or seeking employment.
Labor Market Equilibrium: The point where wage is determined by the intersection of labor demand and supply, resulting in an equilibrium point (E) with a salary level (SE) and employment level (LE). At this point, the amount of labor demanded equals the number of people willing to offer their labor.
Unemployment: Occurs when the supply of workers in a given sector exceeds the demand for them by companies.
Wage Gap: Differences in wages due to preferences and labor mobility between occupations. Other wage differences arise from the nature of the work performed.
Revenue (Land): The price or remuneration for the use of land, reflecting its productivity value.
Characteristics of Land:
- The quantity of land is approximately constant.
- In the short term, a steady flow of production can be obtained without reducing the quantity of the factor.
Land Supply Considerations:
The supply of land for a particular use is not fixed. For example, land devoted to cotton production can be expanded by reducing land used for corn production or increasing irrigated land. Similarly, the supply of developable land can be increased by reducing land for agricultural or recreational activities.
Price Determination: Because land supply is often considered fixed, price or income is determined primarily by demand.
Economic Rent: The performance of a production factor above its opportunity cost.