LS1 LD2 LE LS2LD1 L

Fig. 14 Equilibrium in the labor market

In the event of a decrease W/P2 in real wages compared to the equilibrium, the demand for labor LD1 exceeds supply LS1 on the value of LS1-LD1. Results in the formation unfilled jobs, due to a lack of workers willing to work for lower wages (Figure 15.).

Fluctuations in the demand for labor and the supply of labor can in a general way to answer the question of why high or low wages. Therefore the question of wage differentiation / 1.s.240 /.

Differentiation of wages - an objective phenomenon, extending professional staff workers and migration between groups of different professions cannot be completely smooth.

It is important to stop on an important and interesting economic phenomena that characterizes the offer of individual labor

From conventional labor supply curve, as discussed earlier, the supply curve of labor is characterized by its individual configuration. Up to the point I curve shows an increase in the supply of labor with the growth of wages - it is removed from the vertical axis.

However, after passing the point I, LS curve changes direction. She bends over and close to the vertical axis shows a paradoxical situation. Since an increase in salary every hour worked better paid, every hour of free time employee is perceived as increased loss, more profits.

LS

W ← revenue effect

Wi I

← substitution effect

Li L

Рис. 14. Offer individual labor

His benefit could be realized in the conversion of free time to work - hence the desire to replace the spare time with additional work. Accordingly leisure replaced by a set of goods and services that the employee can buy the increased wages. The above process is called the substitution effect.

Income effect - resists substitution effect. When problems are solved daily bread, so does our attitude to the free time, it seems less of wages, and the field is presented for the pleasure and joy, the more that high wages can enrich and diversify leisure. Therefore, it is logical emergence not only desire to buy more goods, but also to have more free time. This can be done only by reducing the supply of labor, free time is not bought for cash, but for the money that could be obtained in case of failure of leisure in favor of the extra work.