The experiment sets out to see and examine how much can be made by the employer in terms of the number of people they employ. The unemployed are also carted for. In the first session, the employer who employs one worker earns 20 dollars, whereas when you are employed you get a minimum wage of 12 dollars. However this can also change and the employ might end up getting the wage that was agreed on which is 9 dollars. At the same time, when an employer hires two workers, he earns 30 dollars.
Here the profit made will equal the minimum wage paid to the workers. The process in the second session is no different from that in the first session. The only difference comes in where the workers hired get a minimum wage of 15 dollars instead of 12 dollars. It includes a reservation wage of 5 dollars. According to the third session, if you are unemployed, you get a reservation wage of 12 dollars. And if the job is allocated to you, you do not get the reservation wage but the money that was agreed on.
At the same time you are not allowed to accept a job which does not pay the minimum wage of 15 dollars. However, when it comes to employing, the employer is allowed to employ up to four workers. Employing one worker earns you 30 dollars, two workers 50 dollars, three workers 75 dollars and finally hiring four workers earns you 95 dollars. The experiment takes place in various stages. The first session and second session each have two rounds of payment from ten different firms.
The amount each pays is the same however there are no payments in the second round of the wages in the second session since the worker is paid only the minimum wage. In the first session some firms pay both the amount that was agreed on and the minimum wage to carter for the expenses for hiring a single worker. In the third session, the firms pay the workers not less than the minimum wage and pay them more. The highest paid get wages of 18 dollars. It is however different from the rest as the workers are paid in four rounds. The theory put in place here is the Theory of Labor Supply.
It states that supply of labor as the number of workers willing to and able to work for a specific wage rate in a given industry. The supply and demand of labor is often fundamental to any process of production. The schedule is a relationship between the current wage rate and the number of workers available for the wage rate. A sloped supply graph here will represent a stagnancy of specialized resources.
If a market is perfectly competitive, the profit is maximized by producing at a price equal to the producer’s marginal cost curve. In normal circumstances, a rise in the wage of workers leads to a rise in the production sine it gives the worker motivation to work harder. However, when the increment is excessive, the opposite happens. The worker becomes lazy leading to low production. This theory at the same time includes child labor which is a thing of the past. In this state, two equilibriums can be reached.
When the child’s wage is increased, the production will also increase. This theory also denotes cheap labor which is available in some places. This theory studies the relation in the state that the change in labor and the change in the rate at a given point in time. Elasticity of labor supply is important. Elasticity measures the extent of impact caused by the alteration of the minimum wage on the labor supply at a given point. Most of the time, cheap labor is expected in the in low scale production.
This implies that labor is readily available at a fairly low rate of wage. However, in occupations that required skilled labor, the supply is not elastic. In macroeconomics, it analyses the number of employees available and are ready to work for the amount offered and agreed on. It combines the employed labor and new recruits alongside the unemployed. The amount of output depends on the available labor. Production can be increased by increasing the total supply of labor. Relating the theory and the experiment conducted, the wages paid to the workers was the main focus and constant.
The number of workers was a variable. The theory helps in the conducting of the experiment by showing how much wage is paid to the workers and the type of work they do. The end result of this experiment is meant to be based on how much the product of the output will be. In the case of the first session, the amount of produce will not be a lot. This is because they are paying the workers on wages that are fixed and agreed on.
However in the second session, the amount of produce is expected to be a bit higher. With all the workers earning a minimum wage of 12 dollars, it will give the workers motivation to work hard. However they are only paid in two rounds where the minimum wage is not included in both, hence the production is not maximized. The third session is where production is expected to be maximized. The workers are paid in four rounds and in each round, they are not paid below the minimum wage which is 15 dollars and the employer hires up to four workers as compared to the first and second session where only two workers are hired.
The more the workers hired and the more they are paid, it gives them more motivation and at that rate the amount of production is maximized. Work Cited Rittenberg, Libby. & Tregarthen, Timothy. Principles of Microeconomics. New York: Flat World Knowledge, 2008.