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36 Cards in this Set
- Front
- Back
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A labor market characterized by labor supply adjustments which lag behind changes in demand because of the lengthy training periods required. The path of wages and employment in such models traces out a cobweb pattern when plotted on a supply and demand diagram.
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Cobweb
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Excess burden, deadweight loss measures the values of gains forgone because the tax forces employers to cut employment below the efficient level.
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Deadweight Loss
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The state achieved when the value of goods and services produced is as large as possible given the amount of labor available. This state occurs when the value of marginal product of a given type of labor is the same in all its potential uses and is equal to its opportunity cost (the price of this type of labor).
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Efficient Allocation
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The sum of the producer surplus and worker surplus, or the area of P+Q.
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Gains from Trade
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Measures the increase in national income that occurs as a result of immigration and that accrues to natives.
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Immigration Surplus
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A theorem advanced by Adam Smith that, if markets are competitive and if firms and workers are free to enter and leave these markets, the equilibrium allocation of workers to firms is efficient.
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Invisible Hand Theorem
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Worker benefits that are ensured by the government.
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Mandated Benefits
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The change in total revenue which results from changing labor input by one unit.
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Marginal Revenue Product
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A labor market in which there is only one seller of the output.
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Monopoly
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A labor market in which there is only one buyer of labor. In contrast to a competitive firm which can hire as much as labor as it wants at the going price, a monopsonist must pay higher wages in order to attract additional workers.
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Monopsony
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A labor market in which there are only a few sellers of the output (e.g., the airline industry). An oligopolist, like a monopoly, can influence the price through its production decision. Thus, although an oligopolist may be a price taker in the labor market, it hires fewer workers than a competitive firm because it has an incentive to restrict output in order to keep the output price high.
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Oligopoly
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The profits accruing to firms.
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Producer Surplus
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The view that economic expectations are formed using all information currently available.
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Rational Expectation
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The gains accruing to workers. The difference between what the worker receives and the value of the worker’s time outside of the labor market.
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Worker Surplus
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The fact that earnings differentials across workers do not correctly estimate the returns to schooling if there are unobserved ability differences in the population.
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Ability Bias
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The extra amount an employer must pay to "reimburse" a worker for an undesirable job characteristic that does not exist in alternative jobs.
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Compensating Wage Differential
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The observed relationship between the wage that workers get paid and job characteristics.
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Hedonic Wage Function
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A curve portraying the various wage and job dis-amenity (e.g., risk) combinations that yield a specific level of profit.
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Isoprofit Curve
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The wage premium that will persuade a worker to accept a job with an unpleasant characteristic, such as the risk of injury.
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Reservation Price
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The estimated amount that workers are jointly willing to pay to reduce the likelihood that one of them will suffer a fatal injury in any given year. Estimates base on current economic models suggest the value of a life is on the order of $6 million in 1998 dollars.
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Value of Statistical Life
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A graph showing the earnings level of a specific worker or group of workers at various ages over the life cycle.
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Age-Earning Profile
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A standardized measure of human capital.
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Efficiency Units
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The type of on-the-job training that, once acquired, is equally useful in all firms.
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General Training
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The accumulation of prior investments in education, on-the-job training, health, and other factors which increase productivity.
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Human Capital
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Jacob Mincer's human capital earnings function which shows that the human capital model generates an age-earnings profile of the form: log w = bs + d1t + d2t2 + other variables, where w is the worker's wage rate; s is the number of years of schooling; t gives the number of years of labor market experience, and t2 is a quadratic on experience that captures the concavity of the age-earnings profile.
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Mincer Earnings Function
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The amount of other products that must be forgone or sacrificed when making a choice.
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Opportunity Cost
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The amount necessary to invest today in order to have a given dollar amount at a future date. Means of converting future receipts or expenditures to today's dollars.
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Present Value
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The percentage increase in a workers' earnings resulting from an additional year of schooling.
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Private Rate of Return to Schooling
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The interest rate used to calculate the prevent value of a stream of benefits or costs.
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Rate of Discount
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The percentage change in earnings resulting from an additional year of schooling.
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Rate of Return to Schooling
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The fact that workers self-select into jobs for which they are best suited. In other words, the matching process between workers and jobs is systematic and not random. This implies that it may be misleading to predict the wage of worker if they were to change jobs based on workers who have selected this job, because these job changers are likely to not be as well-suited to the job as those who actually selected the job.
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Selection Bias
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An argument developed by Michael Spence that education in the labor market indicates ("signals") to employers that the worker who holds a certificate or diploma is relatively productive. If education is a "pure signal", it is correlated with but not the cause of higher productivity.
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Signal
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The percentage increase in national income resulting from an additional year of schooling.
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Social Rate of Return to Schooling
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The type of training that enhances productivity only in the firm where it is acquired, and the productive value of the training is lost once the worker leaves the firm.
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Specific Training
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The fact that many specifically-trained workers do not search for employment after being laid off. This occurs because specific training only raises productivity at the firm in which the training was received. Thus, a worker has an incentive to await out the unemployment spell rather than search for new employment.
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Temporary Layoffs
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A graph showing the salary that a worker earns if he completes a particular level of schooling.
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Wage-Schooling Locus
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