Econ Micro. Chapter 12: Labor Markets

Front 1

Product markets

Back 1

markets in which firms sell goods & services to households.

Front 2

Factor markets

Back 2

Markets in which resources (labor, capital, land, natural resources, and entrepreneurship) are sold to firms.

Front 3

Demand for a resource

Back 3

is a derived demand. It arises from and will vary with the demand for that firm's output.

Front 4

Defining a labor market

Back 4

Either broadly or narrowly.

Ex.)
All of the physicians in boston with unusually high wages vs. all physicians in the world.

Front 5

Wage rate

Back 5

the price of a labor market. Usually and hourly rate.

Total earnings over a period of time (usually a year)
divided by the hours they worked during that time.

Front 6

Perfectly competitive labor markets

Back 6

1.) Many buyers & sellers
2.) Standardized labor quality
3.) Easy entry & exit
4.) Well-informed buyers & sellers

Front 7

Market labor demand

Back 7

Demand for all firms for the type of labor being traded in that market

Front 8

Labor demand curve

Back 8

Curve indicating the total number of workers all firms in a labor market want to employ at each wage

Slopes downward

Front 9

The Output effect

Back 9

labor is considered a variable input, used to calculate a firm's marginal cost. Upward shift in Wage rate shifts marginal cost upward and therefore decreases the firm's profit maximizing output of demand. The firm's rate of production falls as does that quantity of labor it wants to employ

Front 10

input substitution effect

Back 10

higher wage rate in a market raises the price of labor relative to the other inputs. Firms switch to using more of the inputs whose prices have not risen and less of the labor input.

Front 11

When the wage rate rises...

Back 11

a firm's marginal cost curve shifts upward

decreasing the firm's profit maximizing output level

employ fewer works

Front 12

Which way does the labor demand curve slope and why

Back 12

Downward.
Because the output effect (increase of a firm's MC = decrease in production and employees)
Because of input substitution effect (increase in labors relative cost to other inputs ((substitute of other inputs)))

Front 13

Shifts n the labor demand curve are caused by:

Back 13

Changes in the demand for the product

Changes involving other inputs

Front 14

a complementary input

Back 14

An input that is used by a particular type of labor, making it more productive and therefore more profitable for the firm to employ

Front 15

an increase in the demand for labor is caused by

Back 15

-New complementary inputs (new technology)

-Cheaper complementary inputs

Front 16

Substituteable input

Back 16

one that can be used instead of a particular type of labor. Ex. machines for conveyor belt workers.

Front 17

a decrease in the demand for labor is caused by

Back 17

-New substitutable input (technological advance)

-Cheaper substitutable inputs

Front 18

Labor supply curve

Back 18

Number of people who want jobs in a labor market at each wage rate.

Front 19

The short run labor supply curve

Back 19

Slopes upward because more people want to work at higher wages

(people who are qualified but previously not working in labor market come out of the woodwork)

Front 20

Shifts in the labor supply curve are caused by...

Back 20

Changes in other labor markets

Changes in number of qualified people

Changes in tastes

Front 21

The labor supply curve will shift rightward when..

Back 21

the number of qualified people rises

the wages in other labor markets fall

the tastes change to favor more work

Front 22

There exists persistent wage inequality

Back 22

Among different occupations

Within the same occupation

Front 23

In an Imaginary world, where wage inequality didnt exist,

Back 23

All labor markets would be perfectly competitive

All jobs would be equally attractive to all workers

In the LR, all workers would be able to costlessly acquire the qualifications for any job

Every worker would earn identical wages in the LR

Front 24

In a competitive market, a wage differential

Back 24

Cannot exist, *****. Because of easy entry and exit, people will flock to the occupation w the highest wage, equilibriums make things settle down to that wages are equal in competitive markets

Front 25

Sources of wage inequality in the real world exist

Back 25

because of one or more violations of the pretend world's attributes

Front 26

Compensating wage differential

Back 26

A difference in wages that makes two jobs equally attractive to a worker

Front 27

Nonmonetary characteristics of different jobs

Back 27

Give rise to compensating wage differentials

Other things equal, Jobs considered intrinsically less attractive will tend to pay higher wage

Front 28

Differences in human capital requirements

Back 28

Give rise to compensating differentials

Jobs that require more costly training tend to pay higher wages

Front 29

Differences in ability to become qualified for a job

Back 29

Jobs that require skills that relatively few people have the ability to acquire will pay persistently higher wage rates, in excess of compensating differentials.

all else equal

Front 30

Differences in ability among those qualified

Back 30

Those with greater ability to preform a job better, have talent, experience, motivation or perseverance

All else equal, those with these attributes will be more valuable to their employers and generally be able to command a higher wage rate

(all else equal)

Front 31

Barriers to entry

Back 31

Occupational licensing

Union wage setting

Front 32

Occupational licensing

Back 32

Keeps out potential entrants

Higher cost of acquiring human capitial

Front 33

Union wage setting

Back 33

A labor union represents the collective interests of its members

negotiate a higher-than-competitive wage

Front 34

A Union in a competitive labor market

Back 34

Raises wages firms must pay

Decreases total employment in the union sector

Wages in nonunion sector drop

Wage differential between union and nonunion sectors

Front 35

Discrimination

Back 35

When a group of people have different opportunities

because of non personal characteristics that have nothing to do with their abilities

Tough laws and government incentive programs have lessened overt job discrimination; less obvious forms remain nontheless

Front 36

Employee and customer prejudice

Back 36

market forces encourage rather than discourage discrimination

can lead to permanent wage gap between favored and nonfavored groups

Front 37

Statistical discrimination

Back 37

-individuals are discriminated against based on the statistical probability of their behavior in their group rather than their own personal traits

-alleged discrimination w/o prejudice

-can be a ploy for prejudice

Front 38

A simple wage gap between two groups....

Back 38

Tends to overstate the impact of discrimination on earnings.

If fails to account for differences in worker skill, experience, and job choice

Front 39

Who pays for a higher minimum wage?

Back 39

Higher average and marginal cost in industries that employ minimum wage labor

higher product prices

Front 40

The cost of a higher minimum wage is paid for by :

Back 40

- Consumers and firms in the SR

-Only consumers in the LR

Front 41

Who benefits from a higher minimum wage?

Back 41

A higher minimum wage is a rather blunt instrument for helping the poor.

Applies to any worker earning the minimum, regardless of their socioeconomic situation

Front 42

Effects of the minimum wage in the covered, unskilled market

Back 42

-Excess supply of labor
-Workers who keep their jobs are paid more
-Some workers lose their jobs

Front 43

The minimum wage is especially harmful to...

Back 43

young workers who are not college bound because they cannot build a job history

Front 44

Effects of the minimum wage in the uncovered, unskilled market are

Back 44

-increase of the supply of labor (spill over from the people who got dicked)

-lower wages

Front 45

Effects of minimum wage in SKILLED market

Back 45

-Firms substitute capital for unskilled labor
-Demand for labor increases
-Higher wages

Front 46

Benefits vs. Harms of minimum wage

Back 46

Benefits:
-unskilled workers who keep their jobs are paid more
-skilled workers by raising their equilibrium wages
HARMS:
-Unskilled workers who cannot find work
-Unskilled workers who work in the uncovered sector, where wages decrease

Front 47

Earned income tax credit

Back 47

An alternative to minimum wage
Supplements incomes of low-income working people, especially those with children

Front 48

Advantages of EITC over minimum wage

Back 48

-The minimum wage applies to ANY unskilled worker
-EITC is only available to low-income households, which provides greater benefits to those supporting children

Front 49

Advantages to raising EITC over increasing minimum wage

Back 49

The costs of minimum wage are spread rather haphazardly among households, with no regard to income

-The funds for the EITC come from a progressive federal tax system, redistributive from higher income to lower income households.

-The MW is likely to reduce employment whereas EITC tends to increase employment
-provides subsidy for labor suppliers
-Shifts the labor supply curve downward + rightward

Front 50

Support for a higher minimum wage

Back 50

Modest employment effects of a higher minimum wage

Political reasonings-
-Funds to expand EITC come from government revenue, constrained by federal budget discipline
-Costs of a higher minimum wage are non budgetary, more easily hidden from view