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In this lesson, students play the role of either buyers or sellers of labor to examine the interconnectedness of individuals and companies in labor markets. Students learn that the demand and supply for labor determine market wage rates and that wages depend, in part, on individual productivity.
Labor markets depend on the exchange of information between individuals who are looking for work and potential employers who have a demand for the skills and abilities that can be supplied by workers. Labor markets can be local, national, or international and comprise individuals with varying qualifications, skill sets, and education levels.
In a market economy, the demand for labor is a derived demand. If the demand for goods and services that labor can produce is low, then the demand for labor will also be low. In a labor market, workers are the suppliers, supplying the productive resource known as labor. Employers play the role of demanders, demanding labor from workers willing to work for a given wage.
Individuals entering the labor force bring with them certain skills, experience, and levels of education that allow them to sell their labor at various wages. Employers looking to produce goods and services will hire workers when they can do so at a cost that makes sense economically.
Wages of workers are affected by individual productivity and the value of what is being produced. Wages generally increase as the value of the good or service produced increases. Workers who are more productive are more valuable to employers and will earn higher wages than their less-productive counterparts.
This lesson was originally published in CEE's High School Economics, 3rd Edition, a collection of 28 engaging lessons which employ an active-learning approach that brings economic concepts to life for students. Visit CEE's store for more information about the publication and how to purchase is.
Conclude the lesson by reviewing the following key points.
How do workers and business owners interact within labor markets to determine wage rates?
Compare and contrast the ability of employers and workers to set wage rates in a labor market in terms of both groups’ economic freedom, mobility, and value.
Employers and workers each have a certain amount of control over wage rates in a labor market because both can say no and will only say yes if the wage rate being offered makes sense economically. Employers will not hire a worker at a certain wage if that worker will not bring in more revenue than what it costs in wages to hire that worker. At the same time, workers will not agree to work for a wage that is less than what they believe they are worth. If the opportunity cost of taking a job—the wage that could be earned in another job—is too high, the worker will decline the job.
Grades 6-8, 9-12
Grades 6-8, 9-12