The Demand for Your Labor

1.         Begin by introducing the concept of derived demand.  Definition: The demand for a productive resource, such as labor, is derived from the demand for the good or service the resource produces. 

 Explain the concept with this reasoning:  Employers really do not want to hire employees and, less than that, they would really like not having to pay their employees.  Employees are a big cost to employers.  The problem is that most business owners can’t figure out how to produce goods and services to sell without hiring employees.  No employees means no products to sell.  No products to sell means no revenues.  No revenues means no profits.  So, employers pay employees for their skills and knowledge to produce goods and services they can sell, and make a profit.  The demand for the workers’ labor derives from the demand for the goods or services.

 2.         Distribute Handout 12-1, Education Pays. 

 As an alternative, the “Education    Pays” chart is available online at this web site: http://www.bls.gov/emp/ep_chart_001.htm .  The chart in the handout includes 2008 data.  The BLS may update the chart when new data is available.

 3.         Begin reviewing the chart by identifying the levels of education list in the middle column.  Define the types of post-secondary degrees (Handout-19-2).

 4.         Direct attention to the right column.  Point out that the median income increases as the level of education increases.

             Students may question the data and point out deviations from the norm – professional athletes, entertainers, entrepreneurs, etc.  Explain that these figures are “medians.”  A “median” in a list of numbers, (ie. income) is the one in the       middle.  If all incomes are listed lowest to highest, the median is the one in the middle - half of the list is higher and half of the list is lower.  This is not to be confused with an average or the “mean” number.

 5.         Ask: What is a high school diploma worth in the labor market?

             High School graduate – median weekly income                  $618

            High school dropout – median weekly income                     $453           

            Difference per week                                                          $165

            Difference per month (4.34 weeks)                                     $710                                   

            Difference per year (52 weeks)                                         $8,580

            From age 18 to age 65 (47 years)                                 $403,260

 6.         Review the relationship between education attainment and income.  Students should be able to generalize about the relationship of education (skills and knowledge) and income potential.

 Relate the income data to “derived demand.”  Ask: How do you think your level of education relates to the demand for your skills and knowledge? 

 Ask:  If you have more education and productive capacity, will employers demand your labor?  Yes – as evidenced by the “Education Pays” chart.

 7.    Refer to the left column of the chart.  Ask: What is the relationship between education level and a person’s potential for unemployment?  Generalize that people with less education tend to be unemployed at a higher rate.  NOTE: This relationship is consistent over time, in times of growth and in recessions.

8.         Conclude by asking students to think about what actions they can take to increase their income potential and the demand for their labor.  Review derived demand. 

 Teachers:  BLS Notes on “Educational Attainment”

http://www.census.gov/population/www/cps/cpsdef.html