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Chap_14 - Chapter 14 Labor Markets Poverty And Income...

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Chapter 14 Labor Markets, Poverty, And Income Distribution Purpose : To explain the rewards to labor and to show how a free market economy like the United States can have a large portion of its population struggling with incomes that are inadequate to provide basic needs. The chapter includes numerical examples and outlines several policies that can be used to help redistribute income to families with sub-standard incomes. Length : 26 pages Time required to read : Ninety minutes of concentrated work will allow reading and understanding. The policy sections may require more time. Number of lectures required for understanding : Two. One for the economics of the labor market (supply and demand for labor), and one to explain income inequality, and the policies related to low income. Part 4: The Economics of Public Policy Part 4 includes Chapters 14, 15, and 16 – the chapters that deal with public policy. These are possibly the most important chapters in the book because they show how economic principles can be used to help solve social and economic problems. The authors suggest that all problems discussed in this section are related to the fact of scarcity and they can be approached using the cost-benefit principle . Students will listen to this.
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Summary The chapter opens with examples that show how individuals with very similar ability and training may earn very different incomes depending on how their skill is rewarded in the market and where they live. The opening leads to the bothersome question, “Why do some people earn so much more than others?” Much of Chapter 14 is devoted to answering this question. Economic principles from earlier chapters are used to show how equilibrium in the labor market can lead to different wages (incomes) for workers engaged in the same line of work. The simple “marginal revenue” is replaced by the value of the marginal product (VMP) and this is equated to marginal cost when the market is in equilibrium. Some of the peculiarities of the labor market are shown using possible shapes of the supply curve for labor. The curve may have the usual positive slope or it may be negatively sloped depending on the wage level and on the characteristics of the workers and the tasks that they are performing. Several possible explanations of wage and income differentials are offered. These include explanations based on human capital collections, labor unions, compensating differentials (to compensate for such things as working the night shift rather than working the day shift), discrimination in the labor market, and markets in which there can be only one – or just a few – individuals who can become the high-paid workers. Inequality is mentioned and documented. It is described as a persistent problem in the U.S.
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