Bài giảng Labour Market Economics - Chapter 7 Wages and Employment in a Single Labour Market

Chapter SevenWages and Employment in a Single Labour Market Created by: Erica Morrill, M.Ed Fanshawe College1© 2002 McGraw-Hill Ryerson Ltd.Chapter FocusEquilibrium in a single labour marketImperfect competitionPayroll taxesMonopsonyMinimum wage2© 2002 McGraw-Hill Ryerson Ltd.Competitive Firm’s DemandAssumptions : homogeneous type of labour price taker and wage takerSupply is perfectly elastic (horizontal) at the wage rateFirms can employ all the labour they need at the market wage rateMarket wage rate is set by the aggregate labour market3© 2002 McGraw-Hill Ryerson Ltd.Figure 7.1 Competitive Product and Labour MarketsWNWcWNWcWNWcSW0W0N01N1N02N2NiD=DiS1S2Firm 1Firm 2Aggregate Labour Market 4© 2002 McGraw-Hill Ryerson Ltd.Short-Run A firm may have to raise its wages to attract additional workers dynamic monopsony Short-run labour supply curve is upward sloping5© 2002 McGraw-Hill Ryerson Ltd.Figure 7.2 The Labour Market in the  Short Run and Long RunLabour0WageDSSS1S’SSupply of workers increase depressing the high short run wageD’ in demand leads to higher wagesWSWc6© 2002 McGraw-Hill Ryerson Ltd.Short-run and Long-run Labour SupplyLong runTemporary wage increases above norm are consistent with the firm being a competitive buyer of labour Short-run wage increases can be a market signal ensures that market forces operate in the longer run7© 2002 McGraw-Hill Ryerson Ltd.Equilibrium in a Competitive MarketMarket-clearing model (neoclassical) for markets with homogeneous workers and homogeneous jobs wages will be equalized across workersabsences of “involuntary unemployment”no queues for jobs or rationing of jobs8© 2002 McGraw-Hill Ryerson Ltd.In Reality.The market-clearing model is not entirely trueWages do not adjust quickly to clear the marketInvoluntary unemployment is frequentLarge wage differentials exist across homogeneous workers and jobs.However, it still serves as a useful approximation of market theory9© 2002 McGraw-Hill Ryerson Ltd.Imperfect CompetitionMonopolyis the industryEffects of hiring more labourmarginal physical product of labour fallsmarginal revenue fallsSells more output only by lowering the product price10© 2002 McGraw-Hill Ryerson Ltd.Figure 7.3 Monopolist Versus  Competitive Demand for LabourNNC*0W*NM*DM = MPPN X MRQ= MRPNDC = MPPN X PQ=  VMPN11© 2002 McGraw-Hill Ryerson Ltd.Product Market Structure and Departure from Market WagesMonopolistearns higher profits and labour may be able to appropriate some of these profitsmay be less cost conscious and may yield to wage demandssensitive to public image pay higher wages to buy good imagelarge firms pay higher wages12© 2002 McGraw-Hill Ryerson Ltd.Oligopoly in the Product MarketFew firms Similar products Action of one firm affects the othersMay depart from Market wages because;earn above normal profits which may be captured by workerslarger firms and may pay above-market wages for reasons related to size13© 2002 McGraw-Hill Ryerson Ltd.Monopolistic Competition in the Product MarketMany small firms with differentiated products giving the firm some discretion in price settingcompetitive in the labour market paying market wages no economic rents (high profits yielding higher wages) no large size factors leading to higher wages14© 2002 McGraw-Hill Ryerson Ltd.Working with Supply and DemandSimulating the effects of a policy change on equilibriumIncidence of a unit payroll tax15© 2002 McGraw-Hill Ryerson Ltd.Unit Payroll TaxTax levied on employersProportional to the firm’s payrollCPP/QPPWorkers’ compensationunemployment insurancehealth insuranceOften considered “job killers”16© 2002 McGraw-Hill Ryerson Ltd. Figure 7.5 The Effect of a Payroll Tax on Employment and WagesN0W1W0ATNSND(W)BN1ND(W+T)CD17© 2002 McGraw-Hill Ryerson Ltd.Characteristics of a MonopsonyLarge relative to the size of the labour marketInfluences wageRaises wages to attract labour Will not lose all of its work force if decreases wagesUpward-sloping labour supply schedule18© 2002 McGraw-Hill Ryerson Ltd.MonopsonyAverage cost is the wage rate Marginal cost is the new wage plus the cost of paying the higher wage to existing workers Marginal cost is higher than average costProfit Maximization when MC=VMP19© 2002 McGraw-Hill Ryerson Ltd.Figure 7.6 MonopsonyWage0VMPN=MPPnPQS=ACMCVMNMWMSMWCNCS0VMPM20© 2002 McGraw-Hill Ryerson Ltd.Implications of a MonopsonyEmployment is lower than a competitive situationRestricts employment because hiring additional labour is costly Higher wages must be paid to intramarginal workers21© 2002 McGraw-Hill Ryerson Ltd.Characteristics of MonopsonistsSome inelasticity of supply of labourMost firms have an element of monopsony power in short runLong run costly problems of recruitment, turnover and morale issuesExamples of monopsony in long run: would be a one industry town in an isolated regionif workers have specialized skills that are useful mainly in a specific firm22© 2002 McGraw-Hill Ryerson Ltd.Perfect Monopsonistic Wage DifferentiationExisting workers receive wages greater when a monopsony raises the wage rateseller’s surplus or economic rentMonopsonist may try to retain some of this seller’s surplus by differentiating it’s work force23© 2002 McGraw-Hill Ryerson Ltd.Perfect Monopsonistic Wage DifferentiationSupply schedule equal to the average cost and marginal cost Does not have to pay existing workers any more than their reservation wageMonopsonists may try to conceal higher wages or use nonwage mechanisms to attract additional labour24© 2002 McGraw-Hill Ryerson Ltd.Imperfect Monopsonistic Wage DifferentiationMonopsonists differentiate between groups of workersdifferent types of labour can be separated there are different supply elasticities25© 2002 McGraw-Hill Ryerson Ltd.Minimum Wage Legislation: Impact on Competitive Labour MarketAdverse employment effectFirms employ less labour at a higher cost Higher wage encourages more people to seek workMagnitude of adverse employment effect depends on the elasticity of the demand for labour26© 2002 McGraw-Hill Ryerson Ltd.Minimum Wage: Offsetting FactorsLabour could increaseif there is exogenous increase in demand for outputif there is an increase in the demand for labour substitutes 27© 2002 McGraw-Hill Ryerson Ltd.Minimum Wage Legislation: Impact on Monopsonyminimum wage (or other form of price fixing) may increase employmentreduces monopsony profitsdepends on the extent to which monopsony is associated with workers who are paid below minimum wage28© 2002 McGraw-Hill Ryerson Ltd.Figure 7.9 Monopsony and Minimum WageMCS=ACVMPN1N0MC1VMP0W1W029© 2002 McGraw-Hill Ryerson Ltd.Minimum Wage Reduces employment in competitive labour marketsIncreases employment in monopsonistic labour marketTheoryShort-run effects are smallDisemployment effects are higher in long-run 30© 2002 McGraw-Hill Ryerson Ltd.End of Chapter SevenChapter 7-31© 2002 McGraw-Hill Ryerson Ltd.