1. Chapter 16 – Labor Markets

2. Individual labor supply
Labor-leisure tradeoff
Effects of a wage increase:
substitution effect
income effect

3. Backward-bending labor supply curve

4. 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)

5. Equilibrium

6. Compensating wage differentials
Differences in wages caused by differences in nonwage job characteristics:
risk
educational requirements
stress
geographical location

7. Wages and job risk

8. 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

9. 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.

10. 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

11. 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?

12. 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).

13. 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

14. 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)

15. 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

16. Complete unionization in a perfectly competitive market
wage S
union wage D
Quantity of labor

17. Union and nonunion firms in a perfectly competitive labor market

18. Bilateral monopoly
monopsony wage

19. Bilateral monopoly (cont.)
union wage
monopsony wage

20. Minimum wage laws equivalent to effect of union
perfectly competitive labor market w/ complete coverage
perfectly competitive labor market with incomplete coverage
monopsony

21. “Superstar” effects
Some athletes, musicians, actors, etc. receive wages substantially above the wages of others
Due to the high return that these workers provide to their employers
A form of economic rent