Demand for Labor
Comparison to Theory of the Firm
The Theory of the Firm derives the supply of a good from a U-shaped average cost curve for a price taker. This model studies the choice of the optimal quantity of production. The demand for labor follows from a corresponding analysis of the optimal quantity of labor to employ given a capital stock that is fixed in the short run.
∏ = P·f(K,N) - W·N - R·K
Maximize over Y.
The Classical View
Demand for labor from profit maximizing behavior.
The New Classical (Real Business Cycles) View
Straight into indifference curves.
The Keynesian View
We are not operating on the production function.
The New Keynesian View
Demand for labor from profit maximizing behavior, but still get sticky wages and prices.