13a - Labor Market Models and Efficiency

OUTLINE LESSON 13a
Labor Market Models and Efficiency

I. Introduction

A. Eight Labor Market Models

1. Competitive Model
2. Imperfect Competition in Product Market
3. Monopsony
4. Union Model increasing demand for labor
5. Union Model craft (exclusive) union
6. Union Model industrial (inclusive) union
7. Union Model bilateral monopoly
8. Minimum Wage FOR and AGAINST

B. For EACH model know the following:

1. assumptions, characteristics, and example

2. graph

3. find the profit maximizing quantity of labor
(this is the quantity that WILL BE HIRED)

4. find the allocatively efficient quantity of labor

II. Competitive Model and Allocative Efficiency

A. Assumptions / Examples

1. perfect competition in the product market
2. perfect competition in the resource market
3. examples

B. Allocative Efficiency: where MSB = MSC

1. MSB = P x MP
2. MSC = Wages
3. Allocative Efficiency where:

P x MP	=	W
MSB	=	MSC

III. Imperfect Competition in the Product Market

A. Assumptions / Examples

1. imperfect competition in the product market
2. perfect competition in the resource market
3. examples

B. Profit Maximizing Quantity of Labor: MRP = MRC

C. Allocative Inefficiency

IV. Monopsony

A. Assumptions / Examples

B. Upsloping Supply Curve to the Firm therefore MRC > W

B. Profit Maximizing Quantity of Labor: MRP = MRC

C. Allocative Inefficiency

V. Union Models

A. Increasing the Demand for Labor

1. increasing product demand (Pe, Pog, Y, N, T)
2. increasing labor productivity
3. increasing the price of substitutes
4. decreasing the price of complements

B. Craft (exclusive) Unions

1. examples / explanation

2. reducing the supply of labor

a. legislation to reduce labor supply
b. exclusive unionism
c. occupational licensing

3. effect on wages and employment

4. Allocative inefficiency

C. Industrial (inclusive) Union

1. examples / explanation
2. effect on wages and employment
3. Allocative inefficiency

D. Bilateral Monopoly Model

1. examples / explanation
2. indeterminate effect on wages and employment
3. Allocative efficiency?

VI. Minimum Wage

A. The Case AGAINST the Minimum Wage

1. unemployment
2. Allocative inefficiency

B. The Cast FOR the Minimum Wage

1. monopsony and employment

a) increases employment
b) improves Allocative efficiency

2. increases labor productivity

a) shock effect
b) health effect

3. minimum wage and the price elasticity of demand for labor: how much unemployment?