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

2. Copyright © 2009 Pearson Education, Inc. 5- 2 FIGURE 2.13 Demand and Supply at the "Market" and "Firm" Level

3. Copyright © 2009 Pearson Education, Inc. 5- 3 Figure 5.1: The Supply of Labor to Firm A: Worker Mobility Costs Increase the Slope of the Labor Supply Curve Facing Individual Employers

4. Copyright © 2009 Pearson Education, Inc. 5- 4 Table 5.1: Labor Supply Schedule for a Hypothetical Firm Operating in a Monopsonistic Market

5. Copyright © 2009 Pearson Education, Inc. 5- 5 Figure 5.2: A Graph of the Firm-Level Data in Table 5.1

6. Copyright © 2009 Pearson Education, Inc. 5- 6 Profit Is Maximized For The Monopsonist When: MRP = ME (marginal expense) where ME > Wage Monopsony

7. Copyright © 2009 Pearson Education, Inc. 5- 7 Figure 5.3: Profit-Maximizing Employment and Wage Levels in a Firm Facing a Monopsonistic Labor Market

8. Copyright © 2009 Pearson Education, Inc. 5- 8 Figure 5.5: Minimum-Wage Effects under Monopsonistic Conditions: Both Wages and Employment Can Increase in the Short Run

9. Copyright © 2009 Pearson Education, Inc. 5- 9 Quasi-Fixed Labor Costs I Variable Costs vs. Quasi-Fixed Costs Hiring Costs Implicit and Explicit Training Costs Non Wage Benefits

10. Copyright © 2009 Pearson Education, Inc. 5- 10 Table 5.2: Hours Devoted by Firms to Training a New Worker during First Three Months on Job, 1992

11. Copyright © 2009 Pearson Education, Inc. 5- 11 Table 5.3: Employee Benefits as a Percentage of Total Compensation, 2006 (Average Hourly Cost in Parentheses)

12. Copyright © 2009 Pearson Education, Inc. 5- 12 The Employment/Hours Trade-Off MP of Labor and MP of Hours ME of Labor and ME of Hours Overtime Pay Premium and Employment When there are quasi-fixed labor costs, production cost Is minimized when: MEm/MPm = MEh/MPh

13. Copyright © 2009 Pearson Education, Inc. 5- 13 Figure 5.6: The Predicted Relationship between ME M /ME H and Overtime Hours

14. Copyright © 2009 Pearson Education, Inc. 5- 14 Training Investments I 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 wage b. the employee must stay with the company until the net cost of training is recovered

15. Copyright © 2009 Pearson Education, Inc. 5- 15 Training Investments I 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)

16. Copyright © 2009 Pearson Education, Inc. 5- 16 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.

17. Copyright © 2009 Pearson Education, Inc. 5- 17 A Two-Period Wage Stream Associated with Specific Training

18. Copyright © 2009 Pearson Education, Inc. 5- 18 Figure 5.7: Productivity and Wage Growth, First Two Years on Job, by Occupation and Initial Hours of Employer Training

19. Copyright © 2009 Pearson Education, Inc. 5- 19 Hiring Costs The Use of Credentials or Signals Statistical Discrimination Internal Labor Markets