ECN212 Week 12 Note
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This 3 page Class Notes was uploaded by Phoebe Chang on Monday April 18, 2016. The Class Notes belongs to ECN 212 at a university taught by William Foster in Spring 2016. Since its upload, it has received 24 views.
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Date Created: 04/18/16
ECN212LaborMarket SpringSEMESTER2016 Professor:Dr.WilliamFoster EliteNotetaker:Phoebe(email@example.com) Labor Markets ● Definition ○ The price of labor (wages) is determined in the marketplace ○ Just like the price of most other goods ○ Individuals sell (supply) their labor at the market wage to firms who demand it ○ Market wage arises at the intersection of labor supply and labor demand Labor Demand ○ Marginal Product of Labor (MPL) ■ Fixed amount of capital- all labors have same skills ■ The increase in revenue created by hiring an additional worker ■ Firm is willing to hire a workerMPL > Wage ○ Graph ■ Wages on Y-axis ■ # of labor demand on X-axis ■ Labor demand curve can be derived from the marginal product of labor ○ Wages ■ Determined by the market demand and supply ■ Lower the wage, more firm demands for labor ■ Looks a lot like normal demand curve ■ Downward sloping Labor Supply ○ High wages encourage greater supply of labor ○ Increases in wages = greatmarketsupply of labor ■ Current employee will work more due to wage rises ■ Higher wage attract workers from other industries ■ Upward sloping supply curve 1 ○ Increases in wages doesn’t mean individual supply of labor is greater ■ Individuals work less when wage increases ■ Not always upward sloping ■ ■ Labor Market Equilibrium ○ Occurs at the intersection of market supply and labor demand curves ○ aka MPL = W ○ Hiring worker when MPL > W ○ Firing worker when MPL < W Wage Differentials ○ Reason why wages are different in different countries ■ Different living standard ■ Different laws ○ Human Capital / Physical Capital ■ Produced by investing time and other resources in education, training and experiences ■ Depreciate over time: “If you don’t use it, when you don’t use it” ■ E.g. Skills; things that make people productive ○ Social Capital ■ Network of people you have in your life ■ Depreciate over time ○ Human capital explains the wage differentials within an economy ○ Investment in human capital involves direct costs and opportunity costs ○ Investments in human capital = good for U.S. ■ College grads earned twice as much as high school grads Compensating Differential ○ Difference in wages that offsets differences in working condition ○ Real wage of job includes non-monetary factors ■ E.g. how dangerous it is, how much strength you use, etc ■ E.g. Unpaid internship (socio-economic discrimination) ○ Balance between wage and fun/safety 2 Labor Union ○ Not reason for wage differentials across countries ○ Wages in unionized jobs > Non-unionized jobs ○ Difficult to get it, difficult to get out (stable system) ○ How to raise wages ■ Reduce industry employment ■ Restricting membership ■ Threatening to strike ■ Reduction in labor supply = increasing wages Labor Market Discrimination ○ Statistical Discrimination ■ Using information about group averages to make conclusions about individuals ■ Not necessarily motivated by malice ■ E.g. like to hire married people ○ Preference-Based Discrimination ■ Dislike of some group of people due to race, religion, gender, etc ■ Not hiring people due to their background ■ Less seen in lower skilled jobs ■ Three kinds ■ Discrimination by Employers ■ Discrimination by Customers ■ Discrimination by Employees ■ Government regulation can reduce the discrimination ■ Good intention doesn’t create good policy 3
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