Copyright © 2009 Pearson Education, Inc. Chapter 5 Frictions in the Labor Market.

Copyright © 2009 Pearson Education, Inc.

Chapter 5

Frictions in the Labor Market

Copyright © 2009 Pearson Education, Inc. 5- 2

FIGURE 2.13 Demand and Supply at the "Market" and "Firm" Level


Figure 5.1: The Supply of Labor to Firm A: Worker Mobility Costs Increase the Slope

of the Labor Supply Curve Facing Individual Employers


Table 5.1: Labor Supply Schedule for a Hypothetical Firm Operating in a

Monopsonistic Market


Figure 5.2: A Graph of the Firm-Level Data in Table 5.1


Profit Is Maximized For The Monopsonist When:

MRP = ME (marginal expense)

where

ME > Wage

Monopsony


Figure 5.3: Profit-Maximizing Employment and Wage Levels in a Firm Facing a

Monopsonistic Labor Market


Figure 5.5: Minimum-Wage Effects under Monopsonistic Conditions: Both Wages and Employment Can Increase in the Short Run


Quasi-Fixed Labor Costs I

Variable Costs vs. Quasi-Fixed CostsHiring CostsImplicit and Explicit Training CostsNon Wage Benefits


Table 5.2: Hours Devoted by Firms to Training a New Worker during First Three

Months on Job, 1992


Table 5.3: Employee Benefits as a Percentage of Total Compensation, 2006

(Average Hourly Cost in Parentheses)


The Employment/Hours Trade-Off

MP of Labor and MP of HoursME of Labor and ME of HoursOvertime Pay Premium and Employment

When there are quasi-fixed labor costs, production cost Is minimized when:

MEm/MPm = MEh/MPh


Figure 5.6: The Predicted Relationship between MEM/MEH and Overtime Hours


Training InvestmentsI

Training investments are quasi-fixed costs that are normally paid for by both the firm and the worker

Increased employee productivity motivates the company to bear the net costs of training, but:

a. training must raise the worker’s productivity more than it increases his/her wageb. the employee must stay with the company until the net cost of training is recovered


Training InvestmentsI

Assume that:

NEo is net expense in period 0 Wo is the wage during period 0 Z are the training cost in period 0 MRPo is trainee’s contribution in period 0

If: NEo = Wo + Z - MRPo > 0

Then, in the next Period, MRP1 must exceed W1

so that MRPo + MRP1 / (1+r) is greater or equal

Wo + Z + W1 / (1+r)


I Will the firm offer general training to its employees?

Only if Wo + Z –MPo = 0

Why?

Because after training, other firms will be willing to

offer the employee a wage W1 = MRP1.

But, if Wo + Z –MPo > 0, the training firm

must pay a wage of W1 < MRP1.


A Two-Period Wage Stream Associated with Specific Training


Figure 5.7: Productivity and Wage Growth, First Two Years on Job, by Occupation and

Initial Hours of Employer Training


Hiring Costs

The Use of Credentials or Signals

Statistical Discrimination

Internal Labor Markets

Copyright © 2009 Pearson Education, Inc. Chapter 5 Frictions in the Labor Market.

Documents

Transcript of Copyright © 2009 Pearson Education, Inc. Chapter 5 Frictions in the Labor Market.