Graph walkthrough · Micro · Labor market

Robots in the warehouse

A warehouse chain installs robots that do the work of picking and packing.

Step 1 of 3 · Before the robots

Warehouse pickers earn 18 dollars an hour and 30 thousand are employed. The horizontal axis is the number of pickers employed. The vertical axis is the hourly wage. The market is at E₀.

The chain in words

Step 1
Before the robots
Warehouse pickers earn 18 dollars an hour and 30 thousand are employed. The horizontal axis is the number of pickers employed. The vertical axis is the hourly wage. The market is at E₀.
Step 2
Labor demand shifts left
Robots are a substitute for pickers. At every wage, the chain now wants fewer workers, so labor demand shifts left. At the old wage of 18 dollars, more people want picking jobs than firms will hire: unemployment appears.
Step 3
The wage falls
With workers competing for fewer posts, the wage slips. As the wage falls, some workers leave for other jobs, a movement along the labor supply curve. The market settles at E₁: a lower wage and fewer pickers employed.

Takeaway. When capital substitutes for labor, labor demand falls: the wage and employment both drop.

Draw it yourself

This shock: draw the graph A minimum wage is set Immigration adds workers Higher prices, more hiring

More on the labor market graph

A minimum wage above the market Immigration and the labor supply Higher output prices, more hiring A wave of retirements

Go deeper

Lesson: The Firm's Hiring Decision

The walkthrough shows the chain. The lesson explains why each link holds, with worked examples and practice questions that remember what you get wrong.

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