Chapter Fourteen
Labor Market Outcomes Under Monopsony *graph*
A monopsony will hire workers up to the point Lm where its demand for labor equals the marginal cost of additional labor, paying the wage Wm given by the supply curve of labor necessary to obtain Lm workers.
what are the two benefits of immigration to the economy?
•Contribute to increased demand for local goods and services which can stimulate the local low skilled labor market. •Generally positive effect on taxes at the federal level.
what are the 2 sources of imperfect competition in labor markets?
•Demand side sources - labor market power by employers •Supply side sources - labor market power by employees.
what are the two disruptive economic effects of immigration
•Immigration weighted toward low-skill workers tends to reduce wages for domestic low-skill workers. Impact on state and local government budgets
perfectly competitive labor market
firms can hire all the labor they wish at the going market wage
collective bargaining
negotiations between unions and a firm or firms
what could be a way to close the earnings gap between the races?
reduce the gap in educational achievement, improve the performance of schools
National Labor-Management Relations Act
specified that workers had a right to organize unions and that management had to give them a fair chance to do so.
what act stopped many states to refuse to hire a black worker, regardless of the credentials or experience of that worker?
the Civil Rights Act of 1964
what do labor unions seek to change?
the balance of power between employers and workers by requiring employers to deal with workers collectively, rather than as individuals
marginal cost of labor
the cost to the firm of hiring one more worker.
if the employer does not sell its output in a perfectly competitive industry, do they face an upward or a downward sloping demand curve for out put? What does the firm have to do with it's prices?
they face a downward sloping demand curve for output, which means that in order to sell additional output the firm must lower its price.
since monopsonies are the sole demander for labor, what curve do they face?
they face the market supply curve for labor
what are some examples of labor unions in the US?
•American Federation of State, County and Municipal Employees (AFSCME), •Service Employees International Union, •National Education Association.
value of the marginal product of labor *graph*
-For firms operating in a competitive output market, the value of additional output sold is the price the firms receive for the output -Since MPL declines with additional labor employed, while that marginal product is worth the market price, the value of the marginal product declines as employment increases.
T/F: Gains in education and experience have eliminated the female/male wage gap over time.
F: Gains in education and experience have reduced the female/male wage gap over time, but not eliminated it. Concerns remain about the extent to which women have not yet assumed a substantial share of the positions at the top of the largest companies or in the U.S. Congress.
T/F: lower-skilled immigrant workers find jobs more quickly, earn higher wages, and pay more in taxes.
F: Higher-skilled immigrant workers find jobs more quickly, earn higher wages, and pay more in taxes.
what do most economists think of immigration?
Most economists believe that while immigration harms some domestic workers, the benefits to the nation exceed the costs.
who hires more workers, a monopsony, or a competitive labor market?
a competitive labor market
which workers get paid a lower wage, a monopsony, or a competitive labor market?
a monopsony
What determines the going market wage rate?
The market wage rate is determined through the interaction of supply and demand in the labor market.
in what similar way does a labor union operate in a labor market?
like a monopoly
would employment be higher or lower in a bilateral monopoly in comparison to a competitive labor market?
lower
the growth of service jobs *graph*
-U.S. workers belonging to unions has declined. -Jobs in services have increased dramatically. -Outside of government employees, unions have not had great success in organizing the service sector.
marginal product of labor *graph*
Because of fixed capital, the marginal product of labor declines as the employer hires additional workers.
which types of workers comprise several of the biggest unions in the nation?
government workers
first rule of labor markets
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 their marginal productivity to the firm
what are the four main possible explanations for the decline of workers involved in a union?
•The shift from manufacturing to service industries. •The force of globalization and increased competition from foreign producers. •A 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.
T/F: Women are likely to bear a disproportionately large share of household responsibilities and child-bearing.
T
Comparison of labor market outcomes: Monopsony vs. Perfect Competition *graph*
-A monopsony hires fewer workers, Lm, than would be hired in a competitive labor market LC. -In exploiting its market power, the monopsony can pay a lower wage, Wm,than workers would earn in a competitive labor market
bilateral monopoly *graph*
-Employment, L*, will be lower in a bilateral monopoly than in a competitive labor market. -The equilibrium wage is indeterminate, somewhere in the range between Wu, what the union would choose, and Wm, what the monopsony would choose.
Equilibrium Employment for Firms in a Competitive Labor Market *graph*
-In a perfectly competitive labor market, firms can hire all the labor they want at the going market wage. -They hire workers up to the point L1 where the going market wage equals the value of the marginal product of labor.
T/F: monopsonies are the sole demander for labor
T
the market wage rate
In a competitive labor market, the equilibrium wage and employment level are determined where: Market demand for labor = Market supply of labor.
define the demand for labor in terms of an equation
The demand for labor can be defined as the marginal product of labor times the value of that output to the firm. Demand for Labor = MPL x P = Value of the Marginal Product of Labor
Percentage of Wage and Salary Workers Who Are Union Members *graph*
The share of wage and salary workers who belong to unions rose sharply in the 1930s and 1940s, but has tailed off since then to 10.7% of all workers in 2016.
what is the issue with women bearing most of the household responsibilities rooted in?
This issue may primarily be rooted in America's social patterns of discrimination, involving the roles that fathers and mothers play
discrimination
acting on the belief that members of a certain group are inferior solely because of a factor such as race, gender, or religion.
affirmative action
active efforts by government or businesses that give special rights to minorities in hiring, promotion or access to education to make up for past discrimination.
In the US, income is based on what?
it's based on one's value to an employer, which depends in part on education
wage ratios by sex and race *graph*
-The ratio of wages for black workers to white workers rose substantially in the late 1960s - 1970s, but has not changed much since. -The ratio of wages for female to male workers changed little through the 1970s, but has risen substantially since the 1980s. -In both cases, a gap remains between the average wages of black and white workers and between the average wages of female and male workers.
Equilibrium Level of Employment for Firms with Market Power *graph*
-For firms with market power in their output market, they choose the number of workers, L2, where Wmkt = MRPL. -Note that since marginal revenue is less than price, the demand for labor for a firm with market power in its output market is less than the demand for labor (L1) for a perfectly competitive firm. -As a result, employment will be lower in an imperfectly competitive industry than in a perfectly competitive industry.
immigration since 1900 *graph*
-The number of immigrants in each decade declined between 1900 and the 1940s, but has risen sharply in recent decades. (Source: U.S. Department of Homeland Security
Projected Changes in America's Racial and Ethnic Diversity *graph*
-This figure shows projected changes in the ethnic makeup of the U.S. population by 2060. Source: US Department of Commerce -Optimists argue that the growing proportions of minority workers will break down remaining discriminatory barriers. -Anti-discrimination policy, seeks to help society move toward this outcome.
union wage negotiations *graph*
-Without a union, the equilibrium at E would have involved the wage We and the quantity of labor Qe. -The union is able to use its bargaining power to raise the wage to Wu. -The result is an excess supply of labor for union jobs. That is, the quantity of labor supplied, Qs is greater than firms' quantity demanded for labor, Qd.
The Marginal Cost of Labor in a Monopsony *graph*
-since monopsonies are the sole demander for labor, they face the market supply curve for labor. -In order to increase employment they must raise the wage they pay not just for new workers, but for all the existing workers they could have hired at the previous lower wage. -As a result, the marginal cost of additional hiring labor is greater than the wage, and thus for any level of employment (above the first worker), MCL is above the Market Supply of Labor.
what is the equation for the demand for labor
-the demand for labor is the marginal product times the marginal revenue. -The Demand for Labor = MPL x MR = Marginal Revenue Product
why does the gap in black-white earnings still persist?
-the remaining racial gap seems related both to continuing differences in education levels and the presence of discrimination. -There is also evidence to support that discrimination in the housing market (and thus quality education attainment) is connected to employment discrimination.
in order to increase employment, what must monopsonies do?
-they must raise the wage they pay not just for new workers, but for all the existing workers they could have hired at the previous lower wage -As a result, the marginal cost of additional hiring labor is greater than the wage
what is a labor union?
A labor union is an organization of workers that negotiates with employers over wages and working conditions.
T/F: the proportion of US workers belonging to unions has remained the the same since the 1950s
F: The proportion of U.S. workers belonging to unions has declined since the early 1950s
bilateral monopoly
a labor market with a union on the supply side and a monopsony on the demand side.
monospony
a sole employer that has no direct competition in hiring, and exploits its market power by offering lower wages than would exist in a competitive market.