Chapter 16 Labor Markets

1
Chapter 16 Labor Markets
2
Individual labor supply

• Labor-leisure tradeoff
• Effects of a wage increase
• substitution effect
• income effect

3
Backward-bending labor supply curve
4
Market labor supply curve

• reservation wage lowest acceptable wage offer
• horizontal summation of individual labor supply
  curves
• market labor supply curve is expected to be
  upward sloping (since different individuals have
  different reservation wages)

5
Equilibrium
6
Compensating wage differentials

• Differences in wages caused by differences in
  nonwage job characteristics
• risk
• educational requirements
• stress
• geographical location

7
Wages and job risk
8
Human capital

• A measure of an individuals productive capacity
• Individuals who are more productive receive
  higher wages.
• An individuals human capital may be increased by
  investments in
• education
• work experience
• health care
• Individuals invest in additional human capital if
  the lifetime benefits exceed the lifetime costs

9
General and firm-specific human capital

• General human capital raises productivity in
  more than one firm
• Firm-specific human capital raises productivity
  only in the current firm
• Long-term employment relationships are common
  when there are nontrivial investments in
  firm-specific human capital.

10
CEO pay packages

• CEOs earn more than 200 times as much as an
  average worker
• Due to separation of ownership and control of
  corporations?
• Tournament theory

11
Discrimination

• occurs when pay or job market opportunities are
  tied to factors other than a workers
  productivity
• Discrimination due to prejudice
• employer prejudice
• worker prejudice
• customer prejudice
• Competitive labor markets and employer prejudice?
• Enclave effects and worker and customer prejudice?

12
Statistical discrimination

• occurs if workers are judged based on the average
  characteristics of the groups of which they are
  members
• affects women and older workers (especially when
  there are substantial training costs).

13
Crowding and occupational segregation

• Statistical discrimination and prejudice may
  result in occupational segregation and crowding
  in labor markets in which there is a large
  proportion of women or minorities

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Antidiscrimination law

• Civil Rights Act of 1964 made it illegal to
  discriminate on the basis of race, color,
  religion, sex, or national origin (except when
  there is a legitimate reason for such policies)

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Standards of discrimination

• Disparate treatment
• occurs when a policy intentionally treats
  individuals differently based on their sex, race,
  color, religion, or national origin
• perpetuates past discrimination?
• Disparate impact
• based on outcomes of policies, not intention of
  policies
• stricter standard, designed to offset past
  discrimination

16
Complete unionization in a perfectly competitive
market
S
wage
union wage
D
Quantity of labor
17
Union and nonunion firms in a perfectly
competitive labor market
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Bilateral monopoly
monopsony wage
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Bilateral monopoly (cont.)
union wage
monopsony wage
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Minimum wage laws

• equivalent to effect of union
• perfectly competitive labor market w/ complete
  coverage
• perfectly competitive labor market with
  incomplete coverage
• monopsony

21
Superstar effects

• Some athletes, musicians, actors, etc. receive
  wages substantially above the wages of others
• Due to the high return that these workers provide
  to their employers
• A form of economic rent