OUTLINE - Chapter 13 - Wage Determination 13a
General Level of Wages
" Role of productivity
" Real wages and productivity
o Plentiful capital
o Abundant natural resources
o Advanced technology
o Labor quality
o Other factors
" Management
" Business, social, and political environment
" Size of domestic market = mass production
" Free-trade aggreements
" Long-run trend of real wages
Purely Competitive Labor Market and Purely Competitive Product Market
" Characteristics
" Market demand for labor (MRP)
" Supply of labor (MRC)
" Labor market equilibrium (MRP = MRC)
" Key graph
Purely Competitive Labor Market and Purely Imperfectly Competitive Product Market
" Characteristics
" Market demand for labor (MRP)
" Supply of labor (MRC)
" Labor market equilibrium (MRP = MRC)
" How does the profit maximizing quantity compare with the competitive quantity (alloc. Efficient)? VMP = W
Monopsony Model
" Characteristics
" Upsloping labor supply curve (MRC)
" MRC is higher than the wage rate (MRC is above the labor D curve)
" Equilibrium wage and employment (MRP = MRC)
" How does the profit maximizing quantity compare with the competitive quantity (alloc. Efficient)? VMP = W
" Examples of Monopsony Power
Three Union Models
" Demand-Enhancement Model
" Exclusive or Craft union Model
" Inclusive or Industrial Union Model
" Wage increases and job loss
" How does the profit maximizing quantity compare with the competitive quantity (alloc. Efficient)?
Bilateral Monopoly Model
" Indeterminate outcome
" Desirability: How does the profit maximizing quantity compare with the competitive quantity (alloc. Efficient)? VMP = W
Minimum Wage Controversy
" Case against the minimum wage
" Case for the minimum wage
" Evidence and conclusions
Wage Differentials - Why do wages differ?:
" Different MRPs
" Noncompeting Groups
o Ability
o Education and training
o Compensating differences
" Market imperfections
o Lack of job information
o Geographic immobility
o Unions and government restraints
o Discrimination
Pay for Performance
" The Principal-Agent problem
" Principal
" agent
" Shirking - ways to reduce (incentive pay plans):
o Piece rates
o Commissions or royalties
o Bonuses, stock options, and profit sharing
o Efficiency wages
" Negative side effects
Are CEOs Overpaid?
" No
" Yes