econ 380 - exam 2 ch 6-10 labor economics Mcgann
what are the characteristics of a perfectly competitive labor market
1) a large number of firms competing with one another to hire a specific type of labor to fill identical jobs 2) numerous qualified people who have identical skills and independently supply their labor services 3) "wage-taking" behavior—that is, neither workers nor firms exert control over the market wage 4) perfect, costless information and labor mobility.
what are the determinants of labor supply
1. Other wage rates An increase (decrease) in the wages paid in other occupations for which workers in a particular labor market are qualified will decrease (increase) labor supply. 2. Nonwage income An increase (decrease) in income other than from employment will decrease (increase) labor supply. 3. Preferences for work versus leisure A net increase (decrease) in people's preferences for work relative to leisure will increase (decrease) labor supply. 4. Nonwage aspects of the job An improvement (worsening) of the nonwage aspects of the job will increase (reduce) labor supply. 5. Number of qualified suppliers An increase (decrease) in the number of qualified suppliers of a specific grade of labor will increase (decrease) labor supply.
what are the four types of labor mobility
Mobility can take several forms, four of which are summarized by boxes I through IV. Specifically, it can involve a job change, but no change in occupation or residence ; an occupational change, but no change in residence ; a geographic move to a job in the same occupation ; or geographic migration accompanied by a change in occupation .
what is equity compensation
a pay scheme where part of the worker's compensation is given or invested in the firm's stock. An increasingly popular form of equity compensation is stock options, which give an employee the right to purchase a fixed number of shares of stock at a set price for a given time period. suffers from free-rider problem
what is profit sharing and what problems does it face
a pay system that allocates a specified portion of a firm's profits to employees. This form of pay increased during the 1980s when workers in basic industries such as autos and primary metals accepted profit sharing in lieu of wage increases. But in reality, the theoretical link between profit sharing and improved efficiency is not so clear-cut. The main reason is that profit sharing is tied to group performance. This tie creates the free-rider problem that we identified in our discussion of bonuses. The larger the organization, the greater the possibility that the free-rider problem will short-circuit the profit sharing-productivity link. The success of a profit-sharing plan depends crucially on how well the free-rider problem is resolved.
Consider Bob, a 26 year old native to Los Angeles who has just graduated from UCLA with an M.A. in Engineering. He has received two job offers, one in N.Y. that pays him $120,000 per year and another in L.A. that will pay him $100,000 per year. He is planning on working in the position, regardless of the location, until he finishes his 30th year of work. His added monetary costs in N.Y. will be $15,000 each year and he expects psychic costs totaling $35,000. He can borrow at the rate of 3.0% (i.e. discount rate). Using the information provided, answer the questions below. You can assume all costs and benefits are incurred/accrued at the end of each year. a) Calculate the Net Present Value of his migration b) Calculate the internal rate of return of his migration c) Based on the NPV and IRR, should he migrate? Why?
a) NPV = 2,023,046.32 b)??? c)???
how does the shirking model tie into wage differentials
above-market wage raises the cost of job loss to workers, which elicits conscientious efforts and reduces the employer's cost per effective unit of labor. On the other hand, where monitoring workers is inexpensive or where the cost of malfeasance by individual workers is low, the cost per effective unit of labor will be minimized at the lower market-clearing wage. These differing circumstances will create wage differentials that are unrelated to skill differentials or to differences in nonwage amenities.
what are efficiency wages
above-market-clearing wages designed to reduce employee shirking and labor turnover; they are equilibrium wages because, given labor supply and demand, employers have no incentive to change them.
what are the determinants of migration
age, family circumstances, education, distance, and unemployment
effects of illegal immigration: fiscal effects
although illegal immigrants do use many local public services such as schools, roads, and parks, most also pay Social Security taxes, user fees, and sales taxes. Most scholars of illegal immigration conclude that these immigrants remain net taxpayers.
Workers that have a steep indifference curve for job safety are considered risk-________ and will likely seek employment with firms that have a relatively Steep/Flat isoprofit curve since such firms can provide safety at a relatively High/Low Cost.
averse flat low
what are commissions and royalties and how do they solve the principal-agent problem
commissions and royalties tie pay to the value of sales. Commissions and royalties are efficient where work effort and work hours are difficult to observe. Time rates in these situations would bring forth attendant shirking problems for the firm because observing the worker would be very expensive. By aligning the interests of the firms and the workers, commissions and royalties help overcome the principal-agent problem.
What are piece rates?
compensation paid in proportion to the number of units of personal output. This compensation often is in found situations where workers control the pace of work, and firms find it expensive to monitor worker effort.
what are compensating wage differentials
consist of the extra pay that an employer must provide to compensate a worker for some undesirable job characteristic that does not exist in an alternative employment.
what are labor immobilities
defined simply as impediments to the movement of labor, constitute another major reason that wage differentials occur and sometimes persist. For convenience, we will classify these barriers to labor mobility as geographic, institutional, and sociological.
Some workers earn more than others in the same occupation because of differences in all of the following except Experience/Education/Natural Talents/Time Preferences/Job Requirements.
education
what creates heterogeneity in jobs or employers
employers or jobs differ in such things as (1) union status, (2) tendency to discriminate, and (3) absolute and relative firm size.
what is the evidence and controversy related to the cobweb model
evidence: Cobweb models help explain adjustments in several labor markets having long training periods and highly specialized labor. For example, historical cobweb adjustments have been found in the markets for new engineers, lawyers, and physicists.8 Recent evidence, however, indicates demand shocks are now causing a greater change in employment and a smaller adjustment of wages for information technology workers than in the past due to increased immigration of skilled workers controversy: college students are more likely to look at present value of lifetime earnings streams than starting salaries in making career decisions students are highly attuned to the boom-bust potential and make rational decisions
how much have fringe benefits as a percent of total employee compensation grown from 1929 to 2014
fringe benefits for all workers have expanded from less than 3 percent of total compensation in 1929 to 31 percent of total pay in 2014.
1. A firm that engages in gender and/or racial discrimination in hiring will pay a Higher/Lower wage than a non-discriminatory firm.
higher
how do raises and promotions act as one solution to the salary problem
if the firm establishes performance based raises and promotions then. The prospect of future raises and promotions means that the worker's decision about hours of work versus leisure in any given year is not based on that year's salary alone. Rather, the salaried worker chooses the optimal hours with a view toward maximizing lifetime utility.
1. A firm that operates in a competitive labor market but an imperfectly competitive product market will hire less more or the same amount of workers compared to a firm that operates in a competitive labor and product market.
less
what is an efficiency wage
one that minimizes an employer's wage cost per effective unit of labor service employed.
what is tournament pay
pay schemes that base compensation on relative performance. Some observers speculate that the multimillion-dollar salaries paid to chief executive officers of large corporations may be equivalent to first-place prizes in a tournament. Indeed, compensation received by CEOs may exceed their personal marginal revenue products. The "excessive" pay may be efficient because it increases the MRPs of younger corporate managers, who aspire to one day become the CEO.
Workers that have a high discount rate are considered Present/Future oriented and will likely earn a Higher/Lower wage than workers with a low discount rate.
present higher ???
what are fringe benefits
public (legally mandated) programs such as Social Security, unemployment compensation, and workers' compensation. They also include many private nonmandatory programs such as private pensions, medical and dental insurance, paid vacations, and sick leave.
what portion of total compensation do fringe benefits make up and are they rising or falling
significant portion of total compensation grown rapidly during the past several decades
Attorneys earn more than Paralegals due to Compensating, Skill, or Efficiency differentials.
skill, paralegals act as assistants to attorneys and have less skill to perform the tasks that attorneys do.
how does the turnover model tie into wage differentials
the turnover version of the efficiency wage model suggested that firms pay above-market-clearing wages where hiring and training costs are large. The above-market-clearing wage increases the value of the job to the worker, thus reducing the turnover rate (quit rate). Consequently, the average level of job experience and the productivity of the firm's labor both rise. The point is that wages may vary across and within industries depending on the efficiency gains, if any, arising from pay strategies that purposely increase the value of the job from the standpoint of the worker.
what is the shirking model of efficiency wages
theorizes that some enterprises pay more than the market-clearing wage to reduce employee shirking. In some situations, employers have little information about how diligently workers are performing their duties . Moreover, full supervision and monitoring of such workers may be too costly. Under these conditions, the possibility arises that all employees will choose to shirk. To counter this possibility, firms may opt to pay workers more than the market-clearing wage. This higher pay increases the relative value of the job as viewed by each worker. It also raises the cost of being terminated for shirking, should it be detected.
what are heterogeneous jobs
they have differing nonwage attributes, require different types and degrees of skill, or vary in the efficacy of paying efficiency wages to increase productivity. Employers also vary with respect to such things as union status, firm size, and discriminatory attitudes.
what is a monopsony and joint monopsony
when a single firm is the sole hirer of a particular type of labor or two or more employers collude to fix a below-competitive wage
labor market efficiency: what is efficient allocation of labor
when workers are being directed to their highest-valued uses. Labor is being allocated efficiently when society obtains the largest amount of domestic output from the given amount of labor available. Stated technically, available labor is efficiently allocated when its value of marginal product or VMP—the dollar value to society of its marginal product—is the same in all alternative employments.
what is the principal agent problem
workers might be thought of as the firms' agents—parties who are hired to advance the interests of others. Alternatively, firms can be conceived of as principals—parties who hire others to help them achieve their objectives. In this case, the firms' or principals' objective is profits. Employees are willing to help firms earn profits in return for payments of wage income. The principal-agent problem occurs when agents (workers) pursue some of their own objectives in conflict with achieving the goals of the principals (firms). Firms desire to maximize profits; workers wish to maximize utility. Profit maximization requires that employees work all agreed-upon hours at agreed-upon levels of effort. Otherwise output will be reduced, and average and marginal costs of production will be higher. But under many employment circumstances, workers can enhance their own utility by engaging in opportunistic behavior that directly conflicts with profit maximization.
what is the allocatively efficient level of employment
MWC = VMP
what is the profit maximizing level of employment
MWC=MRP when MWC(the added cost in wages that need to be payed of hiring an additional worker) is equal to the MRP(the increase (change) in total revenue resulting from employment of each additional labor unit)
determinants of migration: unemployment
(1) Families headed by unemployed people are more likely to migrate than others, and (2) the rate of unemployment at the origin positively affects out-migration.
why do wage differentials occur
(1) jobs are heterogeneous, (2) workers are heterogeneous, and (3) labor markets are imperfect.
what are the migration externalities
1 Real Negative Externalities: Real negative externalities are effects of private actions spilling over to third parties and creating misallocations of resources (economic inefficiency). 2 Pecuniary Externalities: Income Redistribution Pecuniary externalities may be defined as acts that redistribute income among individuals and groups. 3. gains to owners of capital: The conclusion that businesses gain from migration at the expense of domestic workers must be tempered by the fact that this is a short-run, partial-equilibrium model. The theoretical possibilities become more complicated when a long-run, general-equilibrium approach is used and when various assumptions are relaxed. 4. fiscal impacts: An inflow of immigrants can affect the distribution of disposable income in a destination nation or area through its effect on transfer payments and tax collections.
what are the 5 caveats to gains from migration
1 Uncertainty and Imperfect Information 2 Timing of Earnings Gains 3 Earnings Disparities 4 Earnings of Spouses 5 Wage Reductions from Job Losses
what are the determinants of labor demand
1. Product demand Changes in product demand that increase (decrease) the product price will raise (lower) the marginal revenue product (MRP) of labor and therefore increase (decrease) the demand for labor. 2. Productivity Assuming that it does not cause an offsetting decline in product price, an increase (decrease) in productivity will increase (decrease) the demand for labor. 3. Prices of other resources Where resources are gross complements (output effect > substitution effect), an increase (decrease) in the price of a substitute in production will decrease (increase) the demand for labor; where resources are gross substitutes (substitution effect > output effect), an increase (decrease) in the price of a substitute in production will increase (decrease) the demand for labor. An increase (decrease) in the price of a pure complement in production will decrease (increase) labor demand (no substitution effect; therefore a gross complement). 4. Number of employers Assuming no change in employment by other firms hiring a specific grade of labor, an increase (decrease) in the number of employers will increase (decrease) the demand for labor.
what percent of total compensation do fringe benefits make up
31%
Assume an imperfectly competitive firm that can sell 10 widgets for $10 but must lower the price to $9 if it wants to increase sales from 10 to 18 widgets. A further decrease of the price to $8 will increase sales by 5 widgets. It takes one worker to produce 10 widgets, a second worker to produce 18 widgets, and a third worker to produce the last 5 widgets. The firm purchases labor in a competitive labor market and the current wage is $35. How many workers will the firm hire?
???
what are the impacts of capital mobility and interregional or international trade on wage differentials and therefore on labor migration
A high wage rate in the United States Wu and a low wage rate in South Korea Wk may cause either (1) flows of capital from the United States toward South Korea or (2) a price advantage for Korean-produced goods. In either case, the demand for labor is likely to increase in South Korea and decline in the United States. Thus, the wage rate differential will narrow, and consequently no labor migration will occur.
what is the hedonic theory of wages
A model of equilibrium wage differentials that hypothesizes that workers maximize the net utility of their employment by trading changes in wages for changes in nonwage job attributes.
how do monopsonists affect labor market efficiency (figure 6.7)
A monopsonist pays a lower wage rate and employs fewer workers than firms hiring in a competitive labor market; this outcome is allocatively inefficient. Under monopsony MWC > SL (or PL) because the employer must bid up wages to attract a greater quantity of labor and pay the higher wage to all workers. Consequently, it will employ fewer workers than under competitive conditions and pay a wage rate below the MRP of labor. This underallocation of labor resources (VMP > PL) reduces the total value of output in the economy.
determinants of migration: age
All else being equal, the older that a person is, the less likely he or she is to migrate.
what is the wage rate adjustment path
An increase in labor demand initially may cause a substantial wage increase to, say, W0 in occupations that require long training periods. But the supply response to the higher wage may create a surplus of labor to the occupation in the subsequent period, driving the wage rate lower, say, to W1. For a time the wage rate may oscillate above and below the long-run equilibrium wage rate We before equilibrium in the market is finally restored. During the transition periods, wage differentials between this occupation and others paying We will be observed.
what is the employer's isoprofit curve
An isoprofit curve portrays the various combinations of wages and fringe benefits that yield a specific level of profits. We assume that competition will result in a normal profit. Thus, WF shows the various combinations of wages and fringes the firm can afford to provide, given the "prices" of the alternative forms of compensation. negative sloping straight line
what is the effect of Interregional and international trade on wage differences and labor mobility.
Assuming that competition forces product Page 284prices down to marginal costs in both nations, U.S. consumers would reallocate their expenditures toward the lower-priced Korean goods. This would increase the total demand for these imports and eventually raise the derived demand for Korean labor., this would increase the Korean wage rate. The opposite chain of events would occur in the United States, where reduced product demand would shift the derived demand for U.S. labor leftward from D to D1 and reduce the wage to We. This wage narrowing via product flows diminishes the extent of labor migration
how do product market monopolist's affect labor allocation efficiency
Because a product market monopolist's MRP (= MP × MR) curve lies below the VMP (= MP × P) curve, employment is less in the monopolized industry than it would be if the industry were competitive. So an efficiency loss occurs. Monopoly in the product market causes marginal revenue to fall faster than product price as more workers are hired and output is expanded. Because product price P exceeds marginal revenue MR, it follows that MRP (= MP × MR) is less than VMP (= MP × P). The result is less employment and an underallocation of labor resources relative to the case of perfect competition in the product market.
what implication do efficiency wages carry
Because they are set higher than market-clearing wages, efficiency wages may contribute to permanent unemployment.
how do bonuses act as a solution to the salary problem
Bonuses are payments beyond the annual salary based on some factor such as personal or firm performance. Their advantage to the firm is that they may elicit extra work effort. Another advantage is that they do not permanently raise base salaries or hourly wages, as do raises, promotions, or other forms of merit pay.
what are the criticisms of efficiency wage theories
Detractors of efficiency wage theories question whether these models add greatly to our understanding of labor markets in advanced economies. Critics of the shirking model, in particular, point out that several of the pay-for-performance plans discussed earlier in this chapter could serve as alternatives to efficiency wages as ways to guard against poor worker performance. As examples, where monitoring workers is costly, the firm can pay on a piece rate or a commission basis. Where individual performance is difficult to measure, bonus pay based on team performance can be implemented. Second, critics point out that a firm could require employees to post a bond that they would forfeit if they were found to have been negligent in performing their job duties. Finally, detractors of the efficiency wage theory note that firms can reduce shirking by establishing pay plans in which part of the workers' pay is deferred until later years or until employees qualify for pensions. Encouraged by the deferred income, workers will work hard to maintain employment within the firm. Each of these devices, argue the critics, can reduce the principal-agent problem at less expense than paying above-market-clearing wages.32
empirical evidence on the effect of migration of lifetime earnings
Empirical studies confirm that migration increases the lifetime earnings of the average mover. The estimated rate of return is similar to that on other forms of investment in human capital, meaning it generally lies in the 10 to 15 percent range
causes of fringe benefit growth: efficiency considerations
Employers are interested in protecting their training investments and reducing their recruiting and training costs. They may see fringe benefits as a way to tie workers to jobs and hence to reduce quits. Pension benefits in particular are effective in reducing employee turnover.6 Lower turnover means that a higher proportion of the firm's workers are experienced workers who are well past the training stage. Consequently, the average productivity of a firm's workforce rises.
efficiency wage theories: labor turnover model
Employers may increase wages to reduce costly labor turnover, the rate at which workers quit their jobs, necessitating their replacement by new workers. An above-market-clearing wage raises the workers' costs of quitting their jobs and thus lowers the likelihood that they will quit. Lower labor turnover, in turn, increases worker productivity on the average because it increases the proportion of experienced workers relative to those being trained and still "learning by doing." The result is that the higher wage rate shifts the labor demand curve rightward.
what is the shape of market supply of labor curves
Even though specific individuals normally have backward-bending labor supply curves, labor supply curves generally are positively sloped over realistic wage ranges. Higher relative wages attract workers away from household production, leisure, or their previous jobs.
A CEO that is paid more than her MRP will likely be terminated. T/F, Explain
False CEOs are paid efficiency wages not necessarily the wages that are labor market efficient, this form of tournament pay is speculated to boost the mrps of people aiming for the ceo spot
If at the current level of fringe benefits the slope of the isoprofit curve > MRS, the worker and firm will negotiate a higher level of fringe benefits. T/F, Explain
False if the slope of the isoprofit is greater than the MRS of the indifference curve that means fringe benefits must be traded off for non fringe benefits
An implicit deferred wage contract incentivizes older workers to leave the firm so younger workers have opportunities. T/F, Explain
False it incentivizes to stay
what are the labor market implications of the hedonic wage model
First, the labor market will generate wage differentials among people who possess identical amounts of human capital. Other things being equal, higher wages will tend to be associated with fewer nonwage amenities. Second, laws that set a minimum standard for nonwage job amenities may actually reduce the utility of some workers. Third, part of the observed male-female earnings differential may reflect differing tastes for positive job amenities such as pleasant working conditions, a short commuting distance, and a low probability of job injury. Finally, the hedonic model extends our earlier discussion of optimal fringe benefits both in terms of worker indifference maps and employer isoprofit curves. Indifference maps of the utility trade-off between wages and fringe benefits vary from worker to worker. Workers who place a high marginal valuation on fringe benefits—that is, have relatively steep indifference curves—will therefore match up with firms offering pay packages containing significant fringe benefits. Conversely, workers whose valuations of cash wages are higher at the margin than valuations of fringe benefits are more likely to opt to work for firms with relatively fewer fringe benefits but higher cash wages.
causes of fringe benefit growth: tax advantage to the employer
For workers earning less than this amount, the firm reduces its payroll tax burden by tilting the pay package away from wage earnings and toward fringe benefits. Suppose a worker earns $30,000 a year. At the 2015 payroll tax rate of 7.65 percent, the employer would have to pay $2,295 of tax. But if the employer instead pays the worker $20,000 in earnings and $10,000 of fringe benefits, the tax burden for the firm falls to $1,530 (= $20,000 × .0765). Multiplied by thousands of workers, the tax savings to a large firm can be considerable. The upshot is that the firm can offer fringe benefits worth more than a dollar for a dollar reduction in direct pay. In Figure 7.6, the normal-profit isoprofit line fans outward as indicated by the shift from WF to WF′. Because the Social Security tax base and rate have both increased historically, the optimal level of fringe benefits has risen.
perfect competition: homogenous workers and jobs
If all jobs and workers are homogeneous and there is perfect mobility and competition, the wage structure—defined as the array of wage rates paid to workers—will evidence no variability. The average wage rate will be the only wage rate in the economy.
how do the hiring decisions by an individual firm differ from the market as a whole
In a perfectly competitive labor market, the equilibrium wage rate W0 and quantity of labor Q0 are determined by supply and demand, as shown in (a). The individual firm (b) hiring in this market is a wage taker; its labor supply curve, SL = MWC = AWC, is perfectly elastic at W0. The firm maximizes its profits by hiring Q0 units of labor (MRP = MWC). Assuming competition in the product market, this employment level constitutes an efficient allocation of resources (VMP = PL).
efficiency wage theories: nutritional model
In a relatively poor nation, an increase in the real wage might elevate the nutritional and health levels of workers. This will positively affect their physical vigor, mental alertness, and therefore their productivity. Thus, real wage increases could shift labor demand curves rightward, benefiting employers as well as employees.
how does the cobweb model work (figure 6.8)
In the cobweb model, the equilibrium wage rate is achieved only after a period of oscillating wage rate changes caused by recurring labor shortages and surpluses. The cycle just described repeats itself. The quantity of labor demanded in each period depends on the wage rate at that time; the quantity of labor supplied in each period results from the wage rate during the previous period when education and career decisions were originally made. In this instance, equilibrium eventually is achieved at the intersection of the long-run labor supply curve S and demand curve D1. You are urged to carry the analysis forward through another cycle to test your understanding of this unusual model. The adjustment path toward equilibrium at g results in a cobweb pattern
what are the trends of legal immigration to the united states
Legal immigration increased gradually during the 1970s and 1980s until 1988. The number of legal immigrants rose dramatically from 1989 to 1991 as many former illegal immigrants were permitted to become legal immigrants by the Immigration Reform and Control Act of 1986. Since the 1990s, legal immigration has remained relatively high. Currently, about 1 million people become legal immigrants each year.
A worker that is currently earning $12 per hour would like to improve his wage, which of the following methods would help achieve this result. a) Collect Information about the wage distribution in his occupation and confront his employer if he is in the right tail of the distribution. b) Negotiate for more job safety. c) Negotiate for less health care benefits. d) If he believes the current wage is greater than equilibrium in the market, he should give it some time before renegotiating with his employer.
Negotiate for less health care benefits.
what are wage rate distributions
Once we introduce costly information, job searches, and heterogeneous workers and employers into our analysis, the likelihood there will be a single equilibrium wage for each type of labor greatly diminishes. Rather, we can expect to find a range of equilibrium wages for each type of labor. This range may be very narrow or quite broad, depending on the individual circumstances within each occupational labor market.
differing human capital:noncompeting groups
People are not homogeneous. Of particular significance to our discussion of the wage structure is the fact that people possess differing stocks of human capital. At any point in time, the labor force consists of numerous noncompeting groups, each of which represents one or several occupations for which the members of the group qualify.
how does perfect competition relate to the efficient allocation labor (figure 6.5)
Representative firms producing goods such as x, y, and n maximize profits by employing type A labor where the marginal revenue product of labor (MRP) equals the marginal wage cost (MWC). Perfect competition in the product market ensures that MRP equals the value of marginal product (VMP), and perfect competition in the labor market means that MWC equals the price of labor (PL)
causes of fringe benefit growth: economies of scale
Significant economies of scale usually exist in the collective purchase of fringe benefits that lower their prices to buyers. In particular, the average administrative costs and agent fees are much less in purchasing medical, life, disability, or dental insurance for a group than for an individual.5 In addition, group policies eliminate the adverse selection problem—the tendency for individuals who are most likely to draw large benefits to sign up for insurance. As with tax advantages, the "discount prices" on insurance reduce the per-unit cost of fringes and rotate the normal-profit isoprofit line outward, as in Figure 7.6. The result is that a worker is enticed to accept more fringe benefits than previously. To the extent that cost savings have increased historically as the size of firms has grown, the optimal amount of fringe benefits has also grown.
what is marginal wage cost
The change in the firm's total wage cost that results from changing labor input by one unit. It is equal to the wage rate in competitive labor markets.
what is the skill differential
The difference in pay between skilled and unskilled workers
what is the employer's isoprofit curve
The employer's isoprofit curve portrays the various combinations of wage rates and job amenities (for example, job safety) that yield a given level of profit. Competition among firms will result in only normal profits (zero economic profit) in the long run; therefore, firms will be forced to make their "wage rate-job amenity" decisions along a curve such as P.
what is the hedonic indifference map
The hedonic indifference map is composed of a number of indifference curves. Each individual curve shows the various combinations of wage rates and a particular nonwage amenity (for example, job safety)
determinants of migration: education
The higher one's educational attainment, all else being equal, the more likely it is that one will migrate
what are the efficiency gains associated with migration
The migration of labor from low-wage Mexico (b) to high-wage United States (a) will increase the domestic output and reduce the average wage rate in the United States and produce the opposite effects in Mexico.
what is the wage-fringe optimum
The optimal combination of wages and fringe benefits is at b, where the isoprofit curve is tangent to the highest attainable indifference curve for wages and fringe benefits
determinants of migration: family circumstances
The potential costs of migrating multiply as family size increases; therefore, we would expect married workers to have less tendency to migrate than single people, other factors such as age and education being constant.
effects of illegal immigration: employment effects
The presence of undocumented persons in this low-wage labor market shifts the labor supply curve to St and reduces the market wage from Wd to Wt. At Wt, all workers hired are undocumented persons. If the undocumented persons were deported, however, Qd domestic workers would be employed; thus, it is misleading to conclude that undocumented persons accept jobs that domestic workers will not take. It is also misleading to conclude that the deportation of undocumented persons would create employment for native workers on a one-for-one basis.
determinants of migration: distance
The probability of migrating varies inversely with the distance a person must move.
effects of illegal immigration: wage effects
The safest conclusion—given real-world complexities—is that large-scale illegal immigration does reduce the wage rate for substitutable low-skilled domestic workers. But illegal immigration probably has little net impact on the average level of wages in the United States.
causes of fringe benefit growth: other factors
There are several other reasons why fringe benefits have increased historically. Certain fringe benefits are quite income elastic. They involve pension coverage and such services as medical and dental care, purchases of which are quite sensitive to increases in income. Thus, as worker incomes have grown historically, it is not surprising that the "purchase" of such fringes has also expanded.8 Also, the federal government has raised mandated fringe benefits such as Social Security and unemployment compensation. Finally, we will find in Chapter 11 that unionization historically has been a factor in the rise in fringe benefits. On average, union workers receive more generous fringe benefits than nonunion workers. Also, nonunion firms often emulate union contracts as a way to deter unionism.
A firm that pays an efficiency wage pays an above equilibrium wage carries a loss on its workforce to incentivize greater productivity? T/F, Explain
True efficiency wages help to reduce turnover and shirking, they boost efficiency by reducing training costs and making sure that their is an incentive to work hard because the worker is being paid above the market wage making it more costly to lose the job
A firm will always engage in tactics to counteract Shirking? T/F, Explain
True, shirking happens in all industries where humans act as agents because if they can maximize their utility while doing less work they will
what makes workers heterogenous
Wage differentials also arise because workers are heterogeneous; their human capital, time preferences, and tastes for nonwage aspects of jobs differ.
