Chapter 14 - Labor Markets and Income

What is marginal product?

- the additional output a firm can produce by adding one more worker to the production process

What is a bilateral monopoly?

A bilateral monopoly occurs when there is market power on both sides of the labor market, when a union meets a monopsony.

There are two source of imperfect competition in labor markets which are:

Demand side sources - labor market power by employers Supply side sources - labor market power by employees

T or F: When a job applicant is bargaining with an employer for a position, the applicant is often at an advantage - not needing the job more than the employer needs the applicant

False: the applicant is often at a disadvantage - needing the job more than the employer needs the applicant

Union workers might have higher productivity than nonunion workers for a number of reasons:

Higher wages may elicit higher productivity Union workers tend to stay longer at a given job Many unions also offer job training and apprenticeship programs Firms that are confronted with union demands for higher wages may choose production methods that involve more physical and capital and less labor, resulting in increased labor productivity

What is human capital?

Human capital is the accumulated education, training, work habits, and other assets that affect a person's value of marginal product.

What is the human capital theory?

Human capital theory holds that a work's wage is proportion to his or her human capital Some jobs require more human capital

What Determines the Going Market Wage Rate?

It's determined through the interaction of supply and demand in the labor market.

What are labor unions?

Labor unions are organizations of workers that negotiate with employers over wages and working conditions

What is a labor market?

The labor market is the term that economists use for all the different markets for labor. There is no single labor market, but there is a different market for every type of labor

U.S. workers belonging to unions has diminished dramatically since the 50's because:

The shift from manufacturing to service industries The force of globalization and increased competition Reduced desire for unions because of the workplace protection laws now in place U.S. legal environment that makes it relatively more difficult for unions to organize workers and expand their membership legal environments and cultural attitudes toward unions

T or F: Free markets can allow discrimination to occur, but the threat of a loss of sales or a loss of productive workers can also create incentives for a firm not to discriminate.

True

T or F: Since a union and monopsony both want to reduce employment, we can be sure that the outcome will be lower employment compared to a competitive labor market. What happens to wage though is based on the monopsonist's relative bargaining power compared to the union

True

How many workers do we hire?

We hire up to the point where they are no longer profitable; where marginal productivity is less than or equal to marginal labor costs

What consists of a competitive labor market?

Where a market has many potential employers for a given type of worker

What is a monopsony?

a market when an employer is exploiting market power

What is affirmative action?

action efforts by government or business that give special rights to minorities in hiring and promotion to make up for past discrimination Hiring a specific number of percentage of minority employees

describe the different in wage rates from differences in working conditions - Wages depend on VMP and working conditions - Workers have preferences - Safety and work schedules are conditions that matter to workers

compensating wage differentials

Earning differences are mainly due to...

education, experience, intelligence, training, trustworthiness, energy, work habits, etc.

The question for any firm is how much labor to hire, but a perfectly competitive labor market is one where firms can ...

firms can hire all the labor they wish at the going market wage

discrimination

involves acting on the belief that members of a certain group are inferior solely because of a factor such as race, gender, or religion.

a group of workers who bargain collectively with employers for better wages and working conditions.

labor union

Seeks to change the balance of power between employers and workers by requiring employers to deal with workers collectively, rather than as individuals.

labor unions

If the employer does not sell its output in a perfectly competitive industry, they face a downward slope curve for output, so in order to sell additional output, the firm must..

lower its price

Profit is maximized when using any resources, including employees, up to the point where:

marginal benefits = marginal costs, as people have to share resources (computers, phones, leads, etc.)

What is collective bargaining?

negotiation of wages and other conditions of employment by an organized body of employees.

marginal product of labor

the additional output a firm gets by employing one additional worker

What is the marginal cost of labor?

the cost to the firm of hiring one more worker

value of marginal product of labor

the dollar value of the additional output a firm gets by employing one additional worker to their firm

Why does the marginal cost of labor increase faster than the wage rate?

this is because to hire one more worker requires paying a higher wage rate, not just for the new worker but for all the previous hires

T or F: Because a union is the sole supplier to labor, it can act like a monopoly and ask for whatever wage rate it can obtain for its workers. If employers need workers, they have to meet the union's wage demand

true

T or F: If a firm wants to maximize profits, it will never pay more (in terms of wages and benefits) for a worker than the value of his or her marginal productivity to the firm.

true

T or F: Organizations often evaluate people based on their current knowledge, skills, and experiences. However, research indicates that interpersonal, analytical, and motivation competencies are most predictive for driving job performance and organizational profitability.

true

T or F: To give workers more power, the U.S. government has passed, in response to years of labor protests, a number of laws to create more equal balance between workers and employers:

true

T or F: he overall gains to the U.S. economy from immigration are real but relatively small. However, immigration also causes effects like slightly lower wages for low-skill workers and budget problems for certain state and local governments.

true

T or F: Because a monopsonist is the sole employer in a labor market, it can offer any wage that it wishes.

true; Because they face the market supply curve for labor, if they want to hire more workers, they must raise the wage they pay. This creates a quandry, which we can understand by introducing a new concept: the marginal cost of labor

restricts the supply of labor and raise wages Similar to a cartel They increase the supply of labor to the non-union companies Wages in non-union companies go down

unions

When labor markets are competitive, differences in wages are determined by differences in...

value of marginal product