Chapter 17

A profit-maximizing firm hiring in a purely competitive labor market will equate the marginal revenue product of labor with the

wage rate (or MLC)

Critics of the minimum wage argue that imposing a minimum wage higher than the equilibrium wage in a competitive market would: a. create an effective wage ceiling. b. decreases the demand for minimum-wage workers. c. increase unemployment among minimum-wage workers. d. increase the supply of minimum-wage workers.

c. increase unemployment among minimum-wage workers.

Purely competitive labor market

A.Characteristics on page 1 of the chapter 16 outline B.Downward-sloping market demand for labor curve (for a specific occupation) C.Upward-slopingmarket supply of labor (for a specific occupation)

Rising level of wages and employment in advanced economies like the United States

A.Labor demand has increased more rapidly than labor supply B.Increase in labor demand caused primarily by increases in labor productivity C.Sources of increases in labor productivity

From society's point of view: The inefficiency that results from monopsony is that the firm produces __________ output compared to pure competition

Less

From the firm's point of view: Monopsonist pays a _______________ wage rate and hires _______________ workers compared to a purely competitive labor market.

Lower Less

A monopsonist in equilibrium will hire labor at a level where MRP = MLC > W.

True

Monopsony power exists if a firm faces an upward-sloping supply curve for a factor of production.

True

Noncompeting groups of workers are the result of differences in innate and acquired abilities of workers.

True

The reason a monopsonist hires fewer workers than a perfectly competitive firm is each additional worker increases labor costs by more than the wage rate.

True

Differences in marginal revenue productivity

a.For a given supply of labor curve, low MRPL-curve vs. high MRPL-curve b.For a given demand for labor curve, low supply curve vs. high supply curve

Non-competing groups

a.Many workers do not compete with each other for employment, e.g., professors and professional athletes ` b.Differences in innate ability or physical attributes c.Differences in human capital: The skills and knowledge that people acquire from education and training

Compensating wage differences

a.Wage differentials that compensate for differences in working conditions or non-monetary aspects of a job. b.Sources of compensating wage differentials i.Job location:Amenities, weather, etc. ii.Time of day:Day shift - night shift iii.Job risk:Safe job - risky job iv.Job status:Degree of social approval

Higher wage rates and a higher level of employment are the usual consequence of: a.inclusive unionsm. b.exclusive unionism. c.increased labor productivity. d.All of the above.

c.increased labor productivity.

Inclusive union model

1. Organize all workers. Unskilled, semi-skilled, & skilled in an industry 2. Through collective bargaining encourage employers, under threat strike, to pay above-equilibrium wage rates 3. Union-induced wage increases reduces Employment & increases unemployment

Exclusive union model

1. Organize skilled workers like plumbers, carpenters, electricians, masons 2. Decrease the supply of union labor by using restrictive membership policies A. Long apprenticeships B. High fees to join the union C. Limit the number of new members

barriers to entry into, & exit from the labor market

1. Workers are relatively immobile therefore they do not have many other alternatives for comparable employment 2.Sources of barriers to entry & exit A. Financial constraints B.geographicAl constraints C.family constraints D. Humans capital constraints

Sources of increases in labor productivity

1.Technological advance 2.Increases in human capital, the skills and knowledge that people acquire from education and training 3.Increases in capital per worker 4.Access to abundant domestic and imported natural resources. 5.Institutional factors (social - political - legal factors)

Wage floor

Effective minimum wage must be set above the market equilibrium wage rate for covered non exempt workers

A firm upgrades the machinery in its production process is an example of human capital.

False

Compensating wage differences are wage differentials caused by differences in worker productivity.

False

Marginal resource cost refers to the increase in total cost resulting from the production of one more unit of output.

False

The market supply curve of labor is upward sloping because of diminishing returns.

False

A firm hiring workers in a monopsonistic labor market is currently paying $8 per hour and employing 20 units of labor. If it wants to hire another unit of labor, it will have to raise the wage for all labor to $9 per hour

Firm's marginal labor cost is $29 MLC= change in total cost/ change in labor 189-160=29

What is a union's goal?

Goal: To get higher wages and benefits and better working conditions for its members

A profit-maximizing firm hiring in a monopsonistic labor market will equate the marginal revenue product of labor with the

MLC (not the wage rate)

A profit-maximizing monopsonist will hire additional workers until the

MRPL equals MLC.

Monopsony

Market with only one buyer

Monopsonistic Competition

One employer of a particular type of labor services

The labor supply curve facing a purely competitive employer is __________, whereas the labor supply curve facing a monopsonist is ___________

Perfectly elastic, upward sloping.

I'm the short run the minimum wage

Reduces employment & May increase unemployment for covered workers.

The bubonic plague killed approximately one-third of Europe's population in the 14th century. The competitive labor market model predicts that the Black Death caused: a. A decreased supply of labor leading to a decrease in the MRPL and a rise in wages. b. A decreased supply of labor leading to an increase in the MRPL and a rise in wages. c. An increased demand for labor leading to an increase in the MRPL and a rise in W. d. An increased demand for labor leading to a decrease in the MRPL and a fall in W.

b. A decreased supply of labor leading to an increase in the MRPL and a rise in wages.