Increased Labor Demand and the Equilibrium Wage - Essay Example

Increased Labor Demand and the Equilibrium Wage by Christine Smith Labor is one of the three most important factors of production (Mankiw 2004, p. 392). The price of a given type of labor, or the wage earned thereby, is dependent on an abundance or dearth in both its supply and demand (Mankiw, 2004, p. 400). When a particular, competitive labor market is in a state of equilibrium, supply and demand are balanced, and the equilibrium wage for a laborer in that market is fixed and equal to the value of that wage-earner's contribution to the employer's profit revenue (Mankiw, 2004, p. 400). In other words, in a state of labor market equilibrium, employers have hired as many workers needed to render the value of the marginal product equal to wage.

This delicate balance among supply, demand, wage and marginal production value, though, is subject to market changes that shift the worth of the factors involved, and thereby disrupt the equilibrium. For example, in the given scenario, that the September 11th attacks on the United States altered the perceived need for a particular type of labor, to wit, security personnel, the relevant market shift is an increase in demand. Once the demand has increased, supply and demand are no longer balanced, and the market equilibrium is disrupted.

To reset this balance, wage and the value of marginal production must also increase to the point where stability is again achieved. Simply put, and assuming that supply remains unchanged, the greater the demand for a particular type of labor, the greater the marginal value of a particular worker's product, and, thus, the greater must that worker's wage be to achieve market equilibrium. It is logical that the September 11th attacks created a greater demand for security personnel. Society became much more concerned with creating safe environments at locales such as airports, in airplanes, at events where large amounts of people congregate, and at globally-recognized structures.

There are reasons, though, for both an increase and a decrease in the labor supply for security personnel following the September 11th hostilities. It is conceivable that potential workers found the level of violence associated with the acts committed on September 11th intimidating enough to shift their occupational goals. It is also likely, though, that the increase in equilibrium wage associated with the increase in demand for security personnel attracted potential workers from lower paying aspirations or occupations.

In either case, and as discussed above, the shift in supply will create changes in the wage and value of marginal production until the market reaches its new state of equilibrium.ReferencesMankiw, N. Gregory (2004). Principles of Economics. Australia: Thomson/South-Western.