Micro Economy Chap16
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Transcript of Micro Economy Chap16
Individual labor supply Labor-leisure tradeoff Effects of a wage increase:
substitution effect income effect
Market labor supply curve reservation wage = lowest
acceptable wage offer horizontal summation of individual
labor supply curves market labor supply curve is
expected to be upward sloping (since different individuals have different reservation wages)
Compensating wage differentials Differences in wages caused by
differences in nonwage job characteristics: risk educational requirements stress geographical location
Human capital A measure of an individual’s productive
capacity Individuals who are more productive receive
higher wages. An individual’s human capital may be
increased by investments in: education work experience health care
Individuals invest in additional human capital if the lifetime benefits exceed the lifetime costs
General and firm-specific human capital General human capital – raises
productivity in more than one firm Firm-specific human capital –
raises productivity only in the current firm
Long-term employment relationships are common when there are nontrivial investments in firm-specific human capital.
CEO pay packages CEOs earn more than 200 times as
much as an average worker Due to separation of ownership
and control of corporations? Tournament theory
Discrimination occurs when pay or job market opportunities
are tied to factors other than a worker’s productivity
Discrimination due to prejudice: employer prejudice worker prejudice customer prejudice
Competitive labor markets and employer prejudice?
Enclave effects and worker and customer prejudice?
Statistical discrimination occurs if workers are judged based
on the average characteristics of the groups of which they are members
affects women and older workers (especially when there are substantial training costs).
Crowding and occupational segregation Statistical discrimination and
prejudice may result in occupational segregation and “crowding” in labor markets in which there is a large proportion of women or minorities
Antidiscrimination law Civil Rights Act of 1964 – made it
illegal to discriminate on the basis of race, color, religion, sex, or national origin (except when there is a legitimate reason for such policies)
Standards of discrimination Disparate treatment
occurs when a policy intentionally treats individuals differently based on their sex, race, color, religion, or national origin
perpetuates past discrimination? Disparate impact
based on outcomes of policies, not intention of policies
stricter standard, designed to offset past discrimination
Minimum wage laws equivalent to effect of union perfectly competitive labor market
w/ complete coverage perfectly competitive labor market
with incomplete coverage monopsony