Chapter 12, Problem 25AA

To determine

To evaluate: The reason behind the workers with more education and training get higher wages.

Explanation of Solution

As the supply of labor increases, a greater downward pressure is exerted on the rate of pay. If employers' demand for jobs does not keep up with labor supply, wages typically decline. An excess supply of workers is particularly dangerous for employees employed in industries with low entry barriers for new hires, i.e. they have no degree or advanced training.

Conversely, higher-education and training sectors tend to pay higher salaries to workers. The increased pay is attributed to a reduced supply of labor capable of working in those sectors, and the preparation and training needed brings substantial costs.

Economics Concept Introduction

Introduction: The labor market, relates to labor supply and demand, in which supply is generated by the workers and demand is given by the employers. It is a major component of every economy, and is closely correlated with money, commodities, and services markets.