Chapter 3 of Labor Economics by Borjas: A Comprehensive Guide to Labor Demand
(2011) borjas labor economics solutions chapter3.zip 1
If you are a student or a researcher interested in labor economics, you might have come across the book Labor Economics by George Borjas, one of the leading scholars in the field. This book provides a comprehensive and up-to-date introduction to labor economics, covering both theory and empirical evidence. You might also be looking for solutions for chapter 3 of this book, which deals with labor demand. In this article, we will explain what labor economics is, who George Borjas is, what his book Labor Economics is about, and how to find solutions for chapter 3 of his book.
(2011) borjas labor economics solutions chapter3.zip 1
What is labor economics?
Labor economics is a branch of economics that studies how workers and employers interact in the labor market, and how their behavior affects wages, employment, productivity, inequality, and other outcomes. Labor economics also analyzes how public policies, such as taxes, minimum wages, immigration, education, and social security, affect the labor market and the welfare of workers and society.
Definition and scope of labor economics
According to the textbook Labor Economics by George Borjas, labor economics can be defined as "the study of how labor markets work". Labor markets are where workers sell their labor services to employers who demand them. Labor markets are influenced by many factors, such as technology, preferences, institutions, demographics, culture, and government policies. Labor economics aims to understand how these factors affect the decisions of workers and employers, such as how many hours to work, what skills to acquire, how much to pay or accept for a job, how to organize production, how to hire or fire workers, etc. Labor economics also evaluates how these decisions affect various outcomes in the labor market and beyond, such as wages, employment levels, unemployment rates, income distribution, human capital formation, economic growth, poverty reduction, etc.
Major topics and issues in labor economics
Labor economics covers a wide range of topics and issues that are relevant for both theory and practice. Some of the major topics and issues in labor economics are:
Labor supply: how workers decide how much to work and whether to participate in the labor market.
Labor demand: how employers decide how much labor to hire and what factors affect their demand for labor.
Labor market equilibrium: how wages and employment are determined by the interaction of labor supply and demand.
Compensating wage differentials: how wages vary across jobs according to their non-monetary characteristics, such as riskiness, amenities, location, etc.
Education: how education affects human capital accumulation, productivity, earnings, and inequality.
The wage structure: how wages vary across workers according to their characteristics, such as education, experience, gender, race, etc.
Labor mobility: how workers move across jobs, occupations, industries, regions, or countries in response to wage differentials or other factors.
Labor market discrimination: how workers or employers are treated differently based on their group identity, such as gender, race, ethnicity, religion, etc.
Labor unions: how workers organize collectively to bargain with employers over wages and working conditions.
Incentive pay: how employers design compensation schemes to motivate workers to perform better.
Unemployment: how workers become unemployed, how long they stay unemployed, and what are the costs and benefits of unemployment.
Who is George Borjas?
George Borjas is a prominent economist and professor at Harvard University, who specializes in labor economics and immigration. He is widely regarded as one of the most influential scholars in his field, and has published numerous books and articles on various topics related to labor economics.
Biography and academic background
George Borjas was born in Havana, Cuba, in 1950. He immigrated to the United States in 1962 as part of Operation Pedro Pan, a program that helped Cuban children flee the communist regime. He grew up in Miami, Florida, and attended Miami Dade College and St. Peter's College. He earned his Ph.D. in economics from Columbia University in 1975. He taught at the University of California, San Diego, and the University of Chicago, before joining Harvard University in 1995. He is currently the Robert W. Scrivner Professor of Economics and Social Policy at the Harvard Kennedy School of Government. He is also a research associate at the National Bureau of Economic Research (NBER) and a fellow of the Econometric Society.
Contributions and publications in labor economics
George Borjas has made significant contributions to various areas of labor economics, especially immigration, education, wage inequality, and labor market discrimination. He is known for his rigorous empirical analysis and his critical perspective on the effects of immigration on the labor market and the economy. Some of his most influential publications are:
Labor Economics (McGraw-Hill, 2020): This is his textbook on labor economics, which is widely used in undergraduate and graduate courses around the world. It provides a comprehensive and up-to-date introduction to labor economics, emphasizing both theory and empirical evidence. It covers all the major topics and issues in labor economics, using many examples drawn from state-of-the-art studies in the literature. It also introduces methodological techniques that are commonly used in labor economics to empirically test various aspects of the theory.
We Wanted Workers: Unraveling the Immigration Narrative (W.W. Norton & Company, 2016): This is his book on immigration, which challenges the conventional wisdom that immigration is always beneficial for the host country. He argues that immigration has complex and often negative effects on the labor market, the welfare state, and the social fabric of the host country. He also criticizes the political and economic elites who promote immigration without considering its costs and consequences for the native workers and taxpayers.
Heaven's Door: Immigration Policy and the American Economy (Princeton University Press, 1999): This is another book on immigration, which analyzes the economic impact of immigration on the United States. He examines how immigration affects wages, employment, education, skill composition, fiscal balance, and income distribution in the host country. He also evaluates various immigration policies, such as quotas, visas, amnesty, border enforcement, etc., and proposes a new system that would select immigrants based on their skills and economic potential.
"The Labor Demand Curve Is Downward Sloping: Reexamining The Impact Of Immigration On The Labor Market" (Quarterly Journal of Economics, 2003): This is one of his most cited articles on immigration, which revisits the controversial question of how immigration affects the wages of native workers. He develops a new approach that accounts for the fact that immigrants and natives are not perfect substitutes in production, and that different skill groups face different labor demand curves. He shows that immigration reduces the wages of competing workers (those with similar skills as immigrants), increases the wages of complementary workers (those with different skills as immigrants), and increases the profits of employers who hire immigrants.
"Self-Selection And The Earnings Of Immigrants" (American Economic Review, 1987): This is another seminal article on immigration, which introduces the concept of self-selection to explain why immigrants have different earnings than natives. He argues that immigrants are not a random sample of their source countries' populations, but rather they are self-selected based on their skills and abilities. He shows that immigrants from poor countries tend to be positively selected (they have higher skills than their compatriots who stay behind), while immigrants from rich countries tend to be negatively selected (they have lower skills than their compatriots who stay behind). He also shows that self-selection affects how immigrants assimilate into the host country's labor market over time.
What is the book Labor Economics by George Borjas?
Labor Economics by George Borjas is a textbook on labor economics that provides a modern introduction to the field, surveying both theory and facts. The book uses many examples drawn from state-of-the-art studies in labor economics literature. The book also introduces methodological techniques that are commonly used in labor economics to empirically test various aspects of the theory.
Overview and main features of the book
The book consists of 12 chapters, each covering a major topic or issue in labor economics. The chapters are organized as follows:
Introduction to Labor Economics: This chapter introduces the basic concepts and tools of labor economics, such as labor force, labor supply, labor demand, labor market equilibrium, regression analysis, etc.
Labor Supply: This chapter analyzes how workers decide how much to work and whether to participate in the labor market, and how their decisions are affected by wages, taxes, preferences, constraints, etc.
Labor Demand: This chapter examines how employers decide how much labor to hire and what factors affect their demand for labor, such as technology, output prices, factor prices, elasticity of substitution, etc.
Labor Market Equilibrium: This chapter explores how wages and employment are determined by the interaction of labor supply and demand, and how they are affected by various policies, such as minimum wages, payroll taxes, immigration, etc.
Compensating Wage Differentials: This chapter investigates how wages vary across jobs according to their non-monetary characteristics, such as riskiness, amenities, location, etc., and how workers and employers trade off wages and job attributes.
Education: This chapter studies how education affects human capital accumulation, productivity, earnings, and inequality, and how it is influenced by various factors, such as ability, family background, schooling quality, etc.
The Wage Structure: This chapter explores how wages vary across workers according to their characteristics, such as education, experience, gender, race, etc., and how they are affected by various factors, such as human capital investments, wage inequality, labor mobility, discrimination, etc.
Labor Mobility: This chapter analyzes how workers move across jobs, occupations, industries, regions, or countries in response to wage differentials or other factors, and how their mobility affects wages and employment in both origin and destination markets.
Labor Market Discrimination: This chapter examines how workers or employers are treated differently based on their group identity, such as gender, race, ethnicity, religion, etc., and how discrimination affects wages, employment, productivity, and inequality.
Labor Unions: This chapter evaluates how workers organize collectively to bargain with employers over wages and working conditions, and how unions affect wages, employment, productivity, and inequality.
Incentive Pay: This chapter assesses how employers design compensation schemes to motivate workers to perform better, and how incentive pay affects wages, employment, productivity, and inequality.
Unemployment: This chapter investigates how workers become unemployed, how long they stay unemployed, and what are the costs and benefits of unemployment for workers, employers, and society.
The book also includes a mathematical appendix that reviews some of the mathematical tools used in labor economics, such as calculus, algebra, optimization, etc.
The book has several features that make it an effective and engaging learning resource for students and instructors. Some of these features are:
Learning objectives: Each chapter begins with a list of learning objectives that highlight the main concepts and skills that students will acquire from reading the chapter.
Examples: Each chapter contains many examples that illustrate the application of theory to real-world situations and data. The examples are drawn from state-of-the-art studies in labor economics literature that use various empirical methods and data sources.
Figures and tables: Each chapter contains many figures and tables that display graphical and numerical information that complement the text and enhance understanding. The figures and tables are carefully designed and labeled to convey clear and accurate messages.
Exercises: Each chapter ends with a set of exercises that test students' comprehension and application of the concepts and techniques covered in the chapter. The exercises range from simple calculations and graphs to more complex problems that require critical thinking and analysis.
Data sets: The book provides access to several data sets that are used in the examples and exercises throughout the book. The data sets are available in various formats, such as Excel, Stata, etc., and can be downloaded from the book's website.
Online resources: The book is accompanied by a rich set of online resources that enhance the learning experience for students and instructors. These resources include:
A website that contains additional materials, such as data sets, solutions manual, instructor's manual, PowerPoint slides, etc.
A blog that provides updates and commentary on current issues and developments in labor economics.
A podcast that features interviews with leading scholars and practitioners in labor economics.
A YouTube channel that contains videos that explain and demonstrate various concepts and techniques in labor economics.
Summary of chapter 3: Labor Demand
Chapter 3 of the book Labor Economics by George Borjas focuses on labor demand, which is one of the key topics in labor economics. Labor demand refers to how employers decide how much labor to hire and what factors affect their demand for labor. The chapter covers the following main points:
The production function: The production function describes the relationship between the inputs (such as labor, capital, materials, etc.) and the output (such as goods or services) of a firm or an industry. The production function determines how much output can be produced with a given amount of inputs, or how much inputs are needed to produce a given amount of output.
The short run: The short run is a period of time in which some inputs are fixed and cannot be changed by the firm. For example, a firm may have a fixed amount of capital (such as machines or buildings) that it cannot easily adjust in the short run. In the short run, the firm can only vary its variable inputs (such as labor) to change its output. The short-run production function shows how output varies with labor when capital is fixed. The short-run marginal product of labor (MPL) shows how much additional output is produced by hiring one more unit of labor. The short-run average product of labor (APL) shows how much output is produced per unit of labor. The law of diminishing marginal returns states that as more and more units of a variable input are added to a fixed input, the marginal product of the variable input eventually declines.
The long run: The long run is a period of time in which all inputs are variable and can be changed by the firm. For example, a firm can adjust its capital as well as its labor in the long run. In the long run, the firm can choose the optimal combination of inputs that minimizes its cost of production for a given level of output. The long-run production function shows how output varies with both labor and capital. The long-run marginal rate of technical substitution (MRTS) shows how much capital can be substituted for labor (or vice versa) while keeping output constant. The isoquant shows all the combinations of labor and capital that produce the same level of output. The isoquant is downward sloping and convex to the origin, reflecting diminishing MRTS.
The long-run demand curve for labor: The long-run demand curve for labor shows how much labor the firm will hire at each wage rate in the long run, holding other factors constant. The long-run demand curve for labor is derived from the firm's profit maximization problem, which involves choosing the optimal combination of inputs that minimizes its cost of production for a given level of output. The firm's cost minimization problem can be solved using two methods: the equal-product method or the equal-cost method. The equal-product method involves finding the point on the isoquant where MPL/MPK = w/r, where w is the wage rate, r is the rental rate of capital, and MPL and MPK are the marginal products of labor and capital respectively. This point represents the optimal combination of inputs that produces a given level of output with the lowest possible cost. The equal-cost method involves finding the point on the isoquant where it is tangent to an isocost line, which shows all the combinations of labor and capital that have the same total cost. This point also represents the optimal combination of inputs that produces a given level of output with the lowest possible cost. The long-run demand curve for labor is obtained by varying the wage rate and tracing out the optimal amount of labor hired by the firm for each wage rate.
The elasticity of substitution: The elasticity of substitution measures how easily one input can be substituted for another input in production. It is defined as of inputs divided by the percentage change in the MRTS. The elasticity of substitution depends on the shape of the production function and the isoquant. A higher elasticity of substitution means that inputs are more easily substitutable and the isoquant is more linear. A lower elasticity of substitution means that inputs are less easily substitutable and the isoquant is more curved. The elasticity of substitution affects the slope and shape of the long-run demand curve for labor. A higher elasticity of substitution implies a flatter and more elastic long-run demand curve for labor. A lower elasticity of substitution implies a steeper and less elastic long-run demand curve for labor.
What makes labor demand elastic? The elasticity of labor demand measures how responsive labor demand is to changes in the wage rate. It is defined as the percentage change in labor demand divided by the percentage change in the wage rate. The elasticity of labor demand depends on several factors, such as the elasticity of substitution, the elasticity of output demand, the share of labor in total cost, and the scale of production. A higher elasticity of substitution implies a higher elasticity of labor demand, because inputs are more easily substitutable and labor demand is more sensitive to changes in relative prices. A higher elasticity of output demand implies a higher elasticity of labor demand, because output demand is more responsive to changes in output prices and labor demand is derived from output demand. A higher share of labor in total cost implies a higher elasticity of labor demand, because labor costs are a larger proportion of total costs and labor demand is more affected by changes in wages. A larger scale of production implies a lower elasticity of labor