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Chapter 15 lecture notes and ppt notes

by: Danyn Notetaker

Chapter 15 lecture notes and ppt notes ECON 1010

Marketplace > Tulane University > Economcs > ECON 1010 > Chapter 15 lecture notes and ppt notes
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Notes on ppt and lecture
Armine Shahoyan
Class Notes
Microeconomic, McGraw Hill
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This 7 page Class Notes was uploaded by Danyn Notetaker on Sunday May 1, 2016. The Class Notes belongs to ECON 1010 at Tulane University taught by Armine Shahoyan in Summer 2015. Since its upload, it has received 17 views. For similar materials see Microeconomics in Economcs at Tulane University.


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Date Created: 05/01/16
Labor, Wages, and Earning - Wages refer to the price paid for the use of labor • Labor may be workers in the popular sense of the terms blue and white-collar workers • Labor also refers to the professional people and owners of small businesses, in terms of the labor services they provide in operating their business - Wages may take from the bonuses, royalties, commissions and salaries, but in this text the term ‘wages’ is used to mean wage rate or price paid per unit of labor time - It is important to distinguish between nominal and real wages • Nominal — the amount of money received per hour, day, week, etc. • Real — purchasing power pop the wages, i.e., the quantity of goods and services that can be obtained with the wage • Example: If nominal wages raises 5% and there is a 3% rate of inflation, the ‘real’ wage rose by 2% The General Level of Wages - The general level of wages differs greatly among nations, regions, occupations, and individuals - Productivity plays an important role determination of wages • Capital equipment per worker is high • Natural resources have been abundant relative to the labor force in U.S. • Technology advances have been generally higher in the U.S. than most nations, and work methods are steadily improving • The quantity of American labor have been high because of good education, health, and work attitudes • There are other less tangible items underlying the high productivity of American workers - Efficient, flexible management - Stable business, social, and political environment, conductive to growth - Vast size of domestic market, which allows economies of scale - Increased specialization of global production facilitated by free-trade agreements - Real wages and productivity: real hourly compensation per worker can increase only at about the same rate as output per worker • There has been a long-term, secular growth pattern in real wages in the U.S. Economic Models of the Labor Market - The competitive labor market model • Characteristics of a competitive labor market - Numerous firms competing to hire a specific type of labor - Many qualified workers with identical skills available to independently supply this type of labor service - ‘Wage taker’ behavior that pertains to both employer and employee; neither can control the market wage rate • Market demand is determined nu summing horizontally the labor demand curve (MRP) of the individual firms • Market supply will determined by the amount of labor offered at different wage rates; more will be supplied at costs of alternate uses of the time spent either in other labor markets or in household activities or leisure • Market equilibrium wage and quantity of labor employed will be where the labor demand and supply curves intersect - Each individual firm will take this wage rate as given, and will hire workers up to the point at which the market wage rate is equal to the MRP of last worker hired • For each firms, the MRC is constant and equal to the wage because the firms is a ‘wage taker’ and by itself has no influence on the wage in the completive model • The equilibrium wages in 15.3 include these fringe benefits they will need to receive relatively less take home pay - In the monopsony model, the fir s hiring decisions have an impact on the wage • Characteristics of monopsony model: - Firm’s employment is a large portion of the total employment of a particular kind of labor - Type of labor is relatively immobile, either geographically or in the sense that to find alternative employment workers must learn new skills - The firms is a ‘wage maker’ in the sense that the wage rate the firms pats varies direct with the number of workers it employs • Complete monopsonistic power exists when there is only one major employer in a labor market; oligopsony exist when there are only a few major employers in a labor market - Labor supply curve will be upward sloping for the monopsnotic firm; if firm is large it will pay higher wages - As a result, MRC will exceed the wage rate on monopsony because higher wage paid to additional workers - Equilibrium in monopsonistic labor market will also occur where MRC=MRP, but now the MRC is above the wage, so the wage will be lower than it would be if the market were competitive - Monopsonistic labor market there will be fewer workers fired and at lower wage than would be in a competitive labor market - Three union models illustrate a different set of models of imperfect competition in the labor market where the workers are organized so that employers don’t directly deal with individual workers, but with their unions, who try to raise wage rates in several ways • Unions prefer to raise wages by increasing the demand for labor - Unions may try to increase the price for substitute resources, , thus increasing the demand for union workers - Unions can increase the demand for their labor by supporting public action that reduces price of complementary good Exclusive/craft unions raise wages by restricting the supply of workers, either by large • membership fees, long apprenticeships, or forcing employers to hire only union workers - Occupational licensing requirements are another way of restricting labor supply in order to keep wages high • Inclusive/industrial unions don’t limit membership but they but try (unsuccessfully) to unionize every worker in a certain industry so that the employers would otherwise pay • Employers will hire fewer workers than they would if the workers were free to except a lower wage - Studies indicate that size of union advantage is 15% - The size of the unemployment effect will depend on certain factors • Growth in the economy — if demand is increasing, than this shift in labor demand can offset unemployment • If demand for the product and/or labor is inelastic, the wage increase will not have much of an effect - Bilateral monopoly model occurs when a monopsonnist employer faces a unionized labor for, with the employer and the employee have monopoly power • The outcome of the wage in indeterminate and will depend on negotiation - Bilateral monopoly may be more desirable than one-sided market power The Minimum Wage Controversy - The minimum wage controversy concerns the effectiveness of minimum wage legislation as an antipoverty device - Facts about minimum wage: • The federal minimum wage was implemented with the Fair Labor Standard Act • Federal minimum wage has ranged between 30-50% of the average wage paid to manufacturing workers • Many states have a minimum wage exceeding federal minimum wage - The case against minimum wage contains two major criticisms • The minimum wage forces employers to pay a higher than equilibrium wage, so they will hire fewer workers as the wage pushes them higher up their MRP curve Minimum wage is not an effective tool to fight poverty • - The case for the minimum wage includes other arguments • Minimum wage laws occur in markets that are not competitive and not static • Increasing minimum wage may increase productivity - Managers will use workers more efficient when they have higher wages - Minimum wage may reduce labor turnover and training costs - Evidence and conclusions • Minimum wage only leads to unemployment in cases where the minimum wage is greater than the equilibrium wage Its been estimated that a 10% increase in minimum wage causes a 1-3% unemployment • for the groups above, but there;s controversy about true effects • More workers are help by minimum wage the are hurt • The minimum wage helps give some assurance that employers aren’t taking advantage of their workers Wage Differentials - Wage differentials can be plained by using supply and demand for occupations • Given the same supply conditions, workers for whom there is a strong demand will be paid more • Given the same demand conditions, workers where there is a reduced supply will be paid more • Workers contribution to employers TR (MRP) will depend on workers productivity • On the supply side, workers are not homogeneous - Ability levels differ - education and training • Human capital is the accumulated knowledge, know-how, and skills • Workers also will experience wage differentiation partly to to ‘competitive difference’ among jobs - Since matey imperfection exists, labor markets are not perfectly competitive • Workers may lack information about alternative job opportunities - Workers may be reluctant to move to other location - Artificial restraints on mobility may be created by unions - Discrimination in certain labor markets ma crowd women and minorities into certain labor markets Pay and Performance - Linked in many jobs - When one considers workers and the firm’s agents and the firm as the principle, the principle- agent problem arises • Both workers and firm want the firm to survive and be profitable • if agents don’t believe that workers and firms interests are identical, worker will act to improve their own wellbeing • Some incentive method of payment help to avoid the principal-agent problem - Pau for performance can help over come the principal-agent problem and enhance productivity


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