23MeierPP13_18e - Chapter 13 Chapter The Labor Market: Wage...

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Unformatted text preview: Chapter 13 Chapter The Labor Market: Wage Determination Wages Wages • Money vs. real wages Money • Demand and supply Demand D↑ W↑ Em↑ Em D↓ W↓ Em↓ Em S↓ W↑ Em↓ Em S↑ W↓ Em↑ Em Wage Determination Wage • Perfect competition Perfect • Imperfect competition Imperfect • Union models Union • Wage differentials Wage • Wages and human capital Wages Perfect Competition Perfect Perfectly elastic labor supply $ Wc = MRP Supply = P (resource) = MCR MRP c c W Q Imperfect Competition 1 - Monopsony Monopsony one dominant employer 2 - Oligopsony few major employers many employers (some power) 3 - Monopsonistic competition Monopsony MCR Supply of labor Wage Rate (dollars) In monopsony MCR lies above the supply curve Quantity of Labor Monopsony Monopsony MRP MCR S Wage Rate (dollars) b MRP = MCR Wm c MRP m Quantity of Labor Qm Monopsony Monopsony MRP MRC S Wage Rate (dollars) Wage rate is b m Wm c MRP m Quantity of Labor Qm only W due to monopsony power Monopsony MRP MRC Wage Rate (dollars) c Wm The competitive solution would result in a higher wage and greater employment MRP S W Qm c Quantity of Labor Monopsony Monopsonists maximize profits by hiring a smaller number of workers and thereby paying a less-thanthereby competitive wage rate. Union Models Union • Demand-enhancement model Demand-enhancement • Exclusive union model Exclusive • Inclusive union model Inclusive • Bilateral monopoly model Bilateral Demand-Enhancement Model Demand-Enhancement Unions favor practices that Unions increase the demand for American labor, which increases wages as well as employment. wages Demand-Enhancement Model S Wage Rate (dollars) Wu Wc D1 Qc Qu D2 Quantity of Labor Methods Used Methods • Lobby for protective tariffs Lobby • Buy the American label Buy • Featherbedding Featherbedding Craft Union Model Craft • Same as exclusive union Same • Goal: to reduce labor supply Goal: • Plumbers, carpenters, electricians Plumbers, • Result: W↑, but employment↓ Result: Craft Union Model S2 Wage Rate (dollars) S1 Wu Wc D Quantity of Labor Qu Qc • Long apprenticeships Long • High union dues High • Limits on new members Limits • Restricted immigration Restricted • Occupational licensing Occupational Methods Used Methods Industrial Union Model Industrial • Same as inclusive union Same • Goal: ↑membership and control • Auto and steel workers Auto • Result: W↑, but employment↓ Result: Industrial Union Model Wage Rate (dollars) S Wc D Quantity of Labor Qc Industrial Union Model Wage Rate (dollars) S Wu Wc D Quantity of Labor Qu Qc Wage Increases & Unemployment • Union members receive 15% higher wages • Decline in number employed Decline Negative impact reduced by: • Economic growth Economic • Elasticity Elasticity • One buyer, one seller model One Bilateral Monopoly Model Bilateral • Monopsony firm, monopoly union • United Auto Workers vs. GM United • Result: wages indeterminate Result: Bilateral Monopoly Model Monopsonist & union seek different wage rates... Wage Rate (dollars) S Wu Wc Wm D Quantity of Labor Qu=Qm Qc Effects of Minimum Wage Wage Rate (dollars) S $6.15 5.15 Surplus D Quantity of Labor Qd Qe Qs Wage Differentials Why are wages different for different occupations and even the same occupation? even Wage Differentials Three explanations... Three • Non-competing labor groups Non-competing • Compensating differences Compensating • Market imperfections Market Wage Differentials Non-Competing Labor Groups Non-Competing • Ability Ability • Education & Training Education (human capital investment) Wage Differentials Compensating Differences Compensating • Non-monetary aspects Non-monetary • Equalizing differences Equalizing Wage Differentials Market Imperfections Market • Lack of job information Lack • Geographical immobility Geographical • Union influence Union • Seniority Seniority • Discrimination Discrimination ...
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