Chapter 16 Outline
II. THE SOURCE OF EMPLOYMENT GROWTH
A. The Demand for Labor
	1. The demand for labor is a reflection of labor's marginal product.
	a. Labor's marginal product is the change in output associated with an additional worker.
	2. A profit-maximizing firm will hire labor until the real wage and labor's marginal product are equal.
	a. If marginal product is greater than the real wage, the value of the marginal product is greater than the cost of employing an additional worker (the real wage); profits will increase if the worker is hired.
	b. If marginal product is less than the real wage, the value of the marginal product is less than the cost of employing an additional worker (the real wage); profits will increase if the worker is laid off.
	c. At the point where marginal product and the real wage are equal, profits are maximized.
	3. Because of the law of diminishing marginal product, the demand curve is negatively sloped.
	a. The law of diminishing marginal product states that as a firm uses more of a variable resource with a fixed resource and fixed technology, the marginal product of the variable resource will fall.
	4. The demand curve for labor shows that the number of jobs varies with the real wage rate.
	a. At higher real wages, firms are willing to employ fewer workers.
	b. At lower real wages, firms are willing to employ more workers.
B. The Supply of Labor
	1. The supply of labor is not very responsive to changes in the real wage, and is approximated by a vertical line.
	2. Over time, population growth causes the labor supply curve to shift rightward. In the United States, another source of growth in the labor supply has been increases in the labor force participation rate for women.
C. Employment and Equilibrium in the Labor Market
	1. The real wage and the level of employment is determined by the intersection of the labor demand and supply curves.
	2. Increases in the supply of labor drive down the equilibrium real wage and increase the level of employment.
	3. Because the labor supply curve is almost vertical, changes in the demand for labor will affect the real wage, but will have little affect on the level of employment.
D. Conclusion
	1. Some of the increase in employment growth in the United States is due to an increase in the supply of labor.
	a. The increased participation of women in the labor force is responsible for part of this increase in supply.

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