IMCH14new07 - Chapter 14 Labor Chapter Summary Chapter 14...

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Chapter 14 Labor Chapter Summary Chapter 14 examines the labor market. The first section presents a model with perfect competition; the firm sets VMP L = wage. The text next examines labor markets under imperfect competition; in this case the firm sets MRP L = wage. The supply curve of labor is derived from indifference curve analysis; the tradeoff here is between labor and leisure. The chapter also derives a backward-bending supply curve for labor. The text next presents the standard model of the labor market under monopsony followed by a discussion of the implications of minimum wage legislation. The chapter continues with a discussion of unionization, pointing out that unionized labor is actually more productive than nonunion labor. Several theories of economic discrimination (customer discrimination, coworker discrimination, employer discrimination, statistical discrimination) are also presented followed by comments on why internal wage structures of firms are not as differentiated as productivity levels. Finally, there is a discussion of how the “winner take all” mentality effects standard wage theory. The appendix contains a section on compensating wage differentials carefully explaining why high risk jobs or jobs which are simply not satisfying will pay higher wages. The fact that relative income is an important factor in how people view their wages is also noted. Chapter Outline Chapter Preview The Perfectly Competitive Firm's Short-Run Demand for Labor The Perfectly Competitive Firm's Long-Run Demand for Labor The Market Demand Curve for Labor An Imperfect Competitor's Long-Run Demand for Labor The Supply of Labor Is Leisure a Giffen Good? The Noneconomist's Reaction to the Labor Supply Model The Market Supply Curve Monopsony Minimum Wage Laws Labor Unions Discrimination in the Labor Market The Internal Wage Structure Winner-Take-All Markets Summary (Appendix) Compensating Wage Differentials: The Case of Safety (Appendix) Safety Choices and Relative Income Teaching Suggestions 1. The notion that an employer will not pay more for a laborer than that worker generates in added revenue is not hard to understand. What gets complicated are the various combinations of market structures that can impact the added revenue and the worker cost. Before the math and the graphical treatment begins, I find it helpful to take an intuitive approach. Ask the students to put themselves in the shoes of an employer who has to decide whether or not to add one more employee. How much would the employer be willing to pay for another worker? The students should say, "It depends." It depends on how much the worker can add to production, and what the added output will sell for. It pays to keep complicating the problem by suggesting a downward- sloping demand curve for the product. Then suggest that the next worker is enjoying leisure and will work only for a higher wage than you pay your
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167 CHAPTER 14: Labor other people. If you help the students reason their way through an exercise like this they will be ready for the more formal analysis that follows.
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This note was uploaded on 09/16/2011 for the course ECON/ACCOU 101 taught by Professor Jang,hajoon during the Spring '11 term at Korea University.

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IMCH14new07 - Chapter 14 Labor Chapter Summary Chapter 14...

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