Understand economics from scratch

Chapter 13 How the Wage Level Is Determined—The Economics of Factors of Production You Must Know (1)
People are very concerned about how much money they receive every month, but few people think about why they can only receive so much money.In fact, your salary does not depend entirely on your hard work, nor does it entirely depend on whether your boss is generous or stingy. What really matters is market conditions.

Since 2008, a strange phenomenon has appeared in economically developed regions such as the Yangtze River Delta and the Pearl River Delta: it is difficult for college graduates to find satisfactory jobs, but technical school students who graduated from secondary vocational schools have labor units queuing up at the school gate to recruit people .Using economics to explain this phenomenon is that there is a problem with China's education system. Colleges and universities provide society with a supply that exceeds demand, while the supply of vocational and technical secondary schools is seriously insufficient, which leads to a serious imbalance in the labor market.

The labor market is an important part of the factor of production market that we will describe next.

Markets for Factors of Production: Markets that Determine Compensation for Work
Most people are engaged in full-time jobs, but the same work income is not the same.Economists believe that the reason is that people's income is also determined by the market for factors of production.The supply and demand of the three factors of production, labor, land, and capital, determine prices for workers, landowners, and capitalists.

People's income is generally related to the industry they are engaged in.For example, a computer programmer can earn much more than a rice-growing worker.You may take this for granted, but there has never been a law that stipulates that computer programmers must earn more than rice-growing workers, and there is no such requirement even morally.So, what is it that determines the income of different jobs?

From the perspective of the entire national economy, China's GDP in 2006 reached about 209407 billion yuan, and each person's work income is only a drop in the ocean of the entire economic income.People earn income in a variety of ways. What workers earn is wages, benefits and allowances, which account for the vast majority of the national economy.The rest goes to landowners and owners of capital (capital in the form of equipment and buildings) - in the form of rent, profit and interest.So what factors determine that workers, landowners and capital owners will divide the income of the national economy in this way?What factors make the same wage earners have different incomes, and the capital owners also have different incomes?Still going back to the above question, why must the wages of computer programmers be higher than those of rice planters?

In fact, the answers to most questions in economics lie in supply and demand, and the above questions are no exception. The answer is that the supply and demand of the three factors of production, labor, land, and capital, determine the ownership of workers, landlords, and capital. the price of the recipient (that is, the distribution of income).As far as the computer software industry is concerned, it is composed of the labor of programmers, the space of the enterprise (this is the land element), office buildings and computer equipment (capital).Likewise, the rice production industry is made up of the labor of the workers who grow the rice, the farm (land element), and harvesting and transport equipment (capital).

The polarization of income and wealth makes distributional issues among the most contentious in economics.Most people think that high income and huge wealth are due to the inequality brought about by luck and inheritance rights, and poverty is only due to discrimination and lack of opportunities; there are also a few people with vested interests who believe that income should be determined by the market reward mechanism, and policies should only be given to society. Provides a safety net - enabling those in poverty to receive relief without interfering with income distribution markets.

Demand for Labor: How Firms Determine How Many People to Hire
In the case of perfect competition, how do you know how many people a company needs to hire?The answer economists have found is: it is determined by their tendency to pursue profit maximization.Due to the law of diminishing marginal labor, there is always a limit to the number of people an enterprise needs.

The labor market, like any other market, is governed by the forces of supply and demand.The equilibrium wage in the labor market is also determined by the supply and demand of the labor market.But the labor market itself also has its own characteristics—it is a derived demand, and most labor services do not directly act on consumers, but are added to goods in the form of production costs.

First of all, competitive enterprises are based on the premise of pursuing profit maximization.Suppose there is a typical vineyard business, and there are many such businesses selling grapes in the market.The decision-maker of this enterprise has to hire some people to pick grapes in the garden every month. The hired workers come from the grape-picking worker market, and other companies also hire workers from this market.In other words, the firm is the recipient of the price of grapes and the wages of its workers, and all it can decide is the number of workers it hires and the quantity of grapes it sells.At the same time, assuming that the decision-maker of the enterprise pursues profit maximization, the number of workers and the number of grapes will be the factors he considers to maximize profits.

Second, the core is the diminishing marginal product of labor.Before taking into account the number of hired workers, business decision makers must first estimate the impact of the number of grape picking workers on picking and selling grapes.In other words, what the enterprise puts in is the labor of grape pickers, and what it produces is packed grapes.Other inputs such as the land on which the grapes are grown and the trucks to transport them are assumed to be fixed.When the enterprise employs one worker, he will pick 100 kilograms of grapes every week; when the enterprise employs two workers, they will jointly pick 180 kilograms of grapes every week.When the enterprise employs 3 workers, they collectively pick 240 kilograms of grapes every week... We found that, under the condition of other production factors remaining constant, there is a law of diminishing marginal product of labor—that is, as the number of workers increases, the marginal product of labor Production declines.The marginal product of the first worker is 1 kg, the marginal product of the second worker is 100 kg, and then it is 2 kg and 80 kg in decreasing order.The actual reason for the diminishing marginal product of labor may be that the initial workers can freely pick the vines with the highest fruit-bearing rate in the garden.The workers hired subsequently can only pick vines with a relatively low fruit-setting rate, so the contribution of the increased workers to the grape yield is in a downward trend.

Changes in demand: why companies increase staff suddenly

To reduce the unemployment rate of the society, a feasible way is to increase the capacity of the enterprise to accommodate the labor force without reducing the profit of the enterprise.Measures such as increasing the market price of products and carrying out technological innovation can achieve this goal.

In economics, the value of marginal product equals the marginal product of inputs multiplied by the market price of the product.Suppose the market price of oranges is 10 yuan per kilogram.Assuming that the price of oranges remains constant in a competitive market, the value of marginal product also decreases as the number of workers increases.So how many workers will business decision makers consider hiring?
The curve slopes downward to the right and includes a horizontal line indicating the market wage.Facts have proved that only when the number of workers hired by the decision-maker of the enterprise is at the point where these two lines intersect (that is, the value of the marginal product of labor equals wages), can the enterprise maximize profits.But for profit-maximizing enterprises, the marginal product value curve can be regarded as the labor demand curve.

The labor demand curve is a reflection of the value of the marginal product of labor.So, what factors will make enterprises increase or decrease labor demand?Economists have found that there are three main points.

1. Product price
Since the value of the marginal product is the product of the marginal product times the price of the product, the value of the marginal product and the price of the product must move in the same direction.That is to say, the labor demand curve will move with the price change: when the price of oranges rises, the labor demand of orange enterprises will also increase; conversely, as the price of oranges falls, the labor demand of orange enterprises will also decrease.

2. Technological innovation

Scientists and engineers are the protagonists of technological innovation in society. They double the labor productivity of workers and have a profound impact on the labor market.Technological progress increases the marginal product of labor, which in turn increases the demand for labor.This explains why employment has been rising in many countries even as wages have continued to rise.

3. Other factors
Any factor that can affect the marginal product can constitute an impact on the labor demand curve.For example, the lack of enough paper bags for orange-picking workers reduces their marginal product of labor, which in turn reduces the firm's demand for them.

Wage Differentials: On Equilibrium in the Labor Market
In real life, people's salary levels vary greatly, and the average salary is difficult to calculate.For example, in the automobile industry, a manager of an automobile company can earn millions of yuan a year, while his employees can only get a salary of 2 to [-] yuan.In the same service industry, the salary of a professional doctor is dozens of times that of a fast food restaurant employee.So how to make sense of the huge differences in people's wages?
It is also a full-time labor force, but the labor income that people get is very different because of the existence of compensatory wages, differences in labor quality, winner-take-all market, and industry wage differences.

1. Compensatory wages

Some of the great differences in wages arise from differences in the nature of the trades themselves.Some jobs are very attractive and pleasant in themselves, and allow people to get higher psychological benefits. Even some people are willing to work hard even without wages, such as park managers and swimming pool lifeguards.And some jobs contain factors that make people hate-dull, dangerous, high-intensity physical work, and low social status. Even if the price is several times higher than the normal salary, no one is willing to do it, such as coal miners, risk management, etc. Workers, traffic police, etc.

2. There are differences in the quality of labor

The preceding compensatory wages are useful in explaining the differences in the attractiveness of the jobs themselves, but there is something else that cannot be explained.For example, the wages of lawyers are many times higher than that of cleaners, but lawyers have high social status and excellent working conditions, while cleaners have low social status and poor working conditions, which shows that there is still a gap in wages. A key factor is that there are huge innate or acquired differences in people's intelligence, physical strength, upbringing, education, experience, etc., which makes their labor quality also vary greatly.

3. A winner takes all market

There will always be a very small number of lucky people in society, who rely on fame to inflate their income.The most obvious examples are entertainment stars and sports stars, whose performances can be seen by billions of people around the world, which makes the market have a winner-take-all trend - that is, the income gap between the winner and the runner-up has become large .

4. There are differences in industry wages

Today, when the global division of labor is getting smaller and smaller, the barriers between industries are getting higher and higher, and "interlacing like mountains" has become a reality, that is, the labor market is divided, forming large and small non-competitive groups.Education and professional experience greatly increase the cost of people switching careers.For example, doctors and economists are two non-competitive groups. If a doctor who has been practicing for many years wants to switch to an economist, the high cost of changing careers will make him lose more than the gain.It can be said that when people choose an industry, they also choose the wages of an industry.

The Theory of the Firm: An Important Component of Microeconomics

The Italian economist Sraffa, the British economist Mrs. Joan Robinson, and the American economist Chamberlain really studied the firm theory and made important contributions.In 1926, Sraffa published the book "The Law of Income under the Condition of Competition", which marked the emergence of the theory, and the book played an important role in the establishment of the firm theory.The Economics of Imperfect Competition published by Mrs. Robinson in 1933 and The Theory of Monopolistic Competition published by Chamberlain in 1933 can be regarded as the most important works of firm theory.

In the history of economic theory, the representative works of firm theory are generally marked by the works of Chamberlain.Since then, the firm's equilibrium theory has appeared in western economics, and it has been used as the development of the equilibrium price theory to make it perfect.

Firm theory is a theory that studies the behavior of firms, also known as market theory or production theory.Through cost-benefit analysis, it shows how manufacturers determine their output and price under different market conditions.Research on firm theory includes four aspects:

(1) Cost theory.The price paid by the firm to purchase the factors of production for production is the firm's cost.The cost is divided into long-term cost and short-term cost according to whether all inputs are variable, or divided into constant cost and variable cost according to whether the output changes, and then subdivided into total cost, total average cost, marginal cost, Total constant cost, total variable cost, average constant cost, average variable cost, etc.These costs can be represented graphically as corresponding cost curves.

(2) Classification of markets or firms.A market is a place or point of contact where a particular commodity is bought or sold.Firms produce products for the market, and different types of markets determine the nature and type of firms.According to the degree of competition, according to the number of manufacturers, the degree of product differentiation, the degree of difficulty of entering the market, and the degree of control of manufacturers over output and prices, markets or manufacturers can generally be divided into four categories: perfect competition, monopoly, monopolistic competition, and oligopoly.

(3) Firm equilibrium.Taking profit maximization as the goal, analyze how the four manufacturers determine price and output in the short run and long run.Analyze the relationship between the average revenue curve, the marginal revenue curve and the demand curve of the four manufacturers, so as to distinguish the characteristics of the equilibrium of the four manufacturers, and draw a conclusion: the perfectly competitive manufacturer or market is the most economically efficient, the least cost, and the lowest price. The utilization of various resources or factors of production reaches the optimal state.

(4) Non-profit-maximizing firm theory.Study the theory of the firm when the firm does not aim at profit maximization.For example, H. Simon put forward the principle of satisfaction, thinking that the goal of the manufacturer should be to achieve a satisfactory level of profit instead of maximization under the condition of uncertainty and imperfect competition.

The manufacturer is the basic unit of production organization in the market economy, and it mainly refers to individual industrial and commercial households, partnership companies, joint-stock companies, etc.The study of the theory of firm behavior that affects the allocation and allocation of resources is an integral part of microeconomics.

Cost of Production Theory: The value of a commodity depends on the cost of production
The theory of production costs is a value theory that believes that the value of commodities depends on production costs.

A vulgar theory of value in economics holds that value is determined by production costs.It originally originated from a vulgar point of view in Adam Smith's theory of value, that is, in the era of private land and capital accumulation, commodity value is no longer unique to producers, but decomposed into three types: wages, profits and land rent. Income, and therefore the value of commodities, consists of these three incomes, which are also the costs of production of commodities and which determine their value.

Say and Malthus separated Smith's above-mentioned vulgar point of view, and clearly put forward the theory of value of production costs, but their views were different.Say believes that the three factors of production, labor, capital, and land, each provide "productive services" in production, and respectively create corresponding incomes of wages, interest, and land rent as compensation for their own consumption, and these incomes constitute production costs. , which determines the value of the commodity.Malthus believed that the value of a commodity is determined by the amount of labor purchased, which is equal to the amount of labor expended in producing the commodity plus the profit of the capital advanced, that is, the cost of production.

Senior attributed the costs of production to "labor and abstinence".The reward for labor is wages, and the reward for abstinence is profit. Wages plus profits constitute production costs and determine the value of commodities; value is determined by wages and profits, that is, production costs; desire" reward.

All the above statements include profit in the cost of production, which shows that this theory clearly intends to justify the exploitation income of capital, and some production cost theorists hold different views on this.

Torrens believes that production costs should only refer to capital expenditures, not profits.However, he attributes profit to the product of the circulation field, and believes that it is the result of consumers paying more than the value (production cost), which is a view of "transferring profit".

John Mill believed that the cost of production was equal to wages, and the average profit should be added to the value of commodities in addition to wages, and profits were regarded as the reward for capitalists' "abstinence".His theory of value is that the cost of production plus the average profit determines the theory of value, but as far as its actual content is concerned, it is still nothing more than determining the value by three kinds of income.

The common shortcoming and error of all kinds of production cost theory lies in the circular argument of explaining value by value.All kinds of income are just the division of the value that has been created, not the creation of value. The amount of income does not determine the value. Instead, the source and level of income should be explained by the source and size of value.

Irreplaceable, help you get high wages

Mi Zixia is a beautiful man in Weiguo, he likes Duke Ling of Wei very much.

(End of this chapter)