Worker Training Raises Wages and Employment
A training program raises marginal product, so the marginal revenue product of labor rises and labor demand shifts right, lifting the wage and employment.
Worker Training Raises Wages and Employment
Labor MarketA training program raises marginal product, so the marginal revenue product of labor rises and labor demand shifts right, lifting the wage and employment.
Equilibrium at Quantity of Labor 50, Wage ($/hr) 15
Start in Equilibrium
The competitive labor market begins in equilibrium where labor demand (DL = MRP) crosses labor supply (SL). The wage and the quantity of workers hired are set at that intersection.
Now try it yourself: shift the curves in a graded FRQ drill, or open this graph in the free sandbox.
Worker Training Raises Wages and Employment, step by step
- 1
Start in Equilibrium
The competitive labor market begins in equilibrium where labor demand (DL = MRP) crosses labor supply (SL). The wage and the quantity of workers hired are set at that intersection.
- 2
Training Raises Marginal Product
A statewide training program teaches these workers to produce more output per hour, so the marginal product of labor rises. Marginal revenue product equals marginal product times the output price, so the marginal revenue product of every worker increases even though the product still sells for the same price. This program trains people already doing this job rather than qualifying new entrants, so labor supply does not shift. Training that enlarges the pool of qualified workers is a labor supply shifter instead, which is a different question.
- 3
Labor Demand Shifts Right
Each worker is now worth more revenue to the firm, so at any given wage firms want to hire more of them. Labor demand is the marginal revenue product curve, so it shifts rightward.
- 4
New Equilibrium: Higher Wage, More Jobs
Labor supply has not moved, so the market slides up along it to the new intersection. The equilibrium wage is higher and more workers are employed. Firms keep hiring until the wage equals marginal revenue product, and that point now sits at a larger quantity of labor.
Where it ends up
Higher worker productivity raises the marginal revenue product of labor, shifting labor demand right, so the equilibrium wage and the quantity of workers employed both rise.
Now draw it yourself
Same graph, graded on whether you move the right curve and leave the rest alone.
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