ABSTRACT
To this point in our analysis of the labor market, we have treated the cost of labor to employers as having two characteristics. First, we have assumed that the wage rate employers must pay is given to them by the market; that is, the supply of labor curve to a fi rm has been assumed to be horizontal (at the market wage). An employer cannot pay less than the going wage because, if it did so, its workers would instantly quit and go to fi rms paying the going wage . Likewise, it can acquire all the labor it wants at the market wage, so paying more would only raise its costs and reduce its ability to compete in the product market (as noted in chapter 3, only fi rms with product-market monopolies could pay more than they have to and still survive). Individual employers in competitive product markets, then, have been seen as wage takers (not wage makers), and their labor market decisions have involved only how much labor and capital to employ.
