Bài giảng Microeconomics - Chapter 13 Labour Markets

Labour Markets and the Public SectorPart 40What is Part 4 about?1Labour Markets (Ch. 13): Preview2The Economics of Public Policy (Ch. 14): Preview3Public Goods and Taxation (Ch. 15): Preview4Income Distribution (Ch. 16): Preview5Labour Markets6What is Chapter 13 about?7I. Equilibrium in the Labour MarketSlide 13 - 88Characteristics of Labour MarketsSale of human labour is different from the sale of other goodsSale of goods implies we give up any future claim we have on itBut we merely “rent” labour services It is illegal to sell ourselves into slavery“People are different” - heterogeneity means labour differs in qualityMotivation is essential to productivity9How Different are Labour Markets?Supply and demand are still the key analytic toolsSupply = Demand determines equilibrium wage and quantityShifts in the SS & DD curves are analogous to shifts in output markets10Value of Marginal ProductMarginal product of labour The additional output a firm gets by employing one additional unit of labour MPLValue of marginal product of labourThe dollar value of the additional output a firm gets by employing one additional unit of labourDenoted by: V MPL11How Many Workers to Hire?Assume firm has a given capital stock. Issue:How many units to produce?How much labour to hire ?Cost-benefit principle, says “produce until the marginal benefit equals the marginal cost”“hire more workers until the marginal benefit equals the marginal cost”12Table 13.1Employment and Productivity in a Woodworking Company (P = $20)13Wage and Salary Determination in Competitive Labour MarketsWhen a firm can hire as many workers as it wants at a given market wage, it will increase hiring until VMPL equals the wageNote: since firms know that productivity varies, wages will depend on characteristics (e.g. education) that predict productivityCompetition among firms will tend to equalize wages among observationally equivalent workers14Why would employment change ?If the wage rises, employment will be curtailedIf price of the product rises, employment will be expanded (because the VMPL rises with product price)If productivity rises employment will rise (because the VMPL rises with an increase in labour productivity)15MonopsonyA market with only a single buyerWorkers get paid what the firm decides to pay themWorker can move at wage levels are very low SO firms control over the wage is not unlimitedPrevalence has declined because most people now live in large urban labour markets16Marginal Labor CostThe increase in a monopsonist’s total wage bill when an extra worker is hiredNote: if firm has to pay a higher wage to attract a new worker, they usually have to pay the higher wage to all their current workers tooMarginal Labor Cost = wage + (wage change)*(employment)Monopsonists produce too little / hire too fewThe private cost of an additional hire is greater than the social cost of that hire, since hiring one more person means having to increase everyone’s wages17Table 13.6Calculating Marginal Labour Cost for the Monopsonist18Equilibrium in the Labour MarketDemand for labour is the horizontal sum of each employer’s VMPL curveThe supply curve of labour for an individual labour market is upward slopingHowever, the supply curve of labour for the economy as a whole may be vertical or even backward bendingIn each labour marketDemand and supply determines the equilibrium wage and level of employment19Fig. 13.1The Occupational Demand for Labour20Fig. 13.2The Effect of an Increase in the Demand for Computer ProgrammersSD2D1L1L2Employment of programmers(person-hours/year)Wage ($/hour)W2W121II. Explaining Differences in EarningsSlide 13 - 2222Differences in EarningsIn competitive labour markets differences in pay reflect differences in expected productivityProductivity differences may result from differences inTalentTrainingWork effort23Human Capital TheoryHuman capital = skills produced by education, training & experience that affect a worker’s productivity ( MPL )Human capital theoryA theory of pay determination that says a worker’s wage will be proportional to his or her stock of human capital24Investment in Human CapitalThe decision to acquire training or education can be analyzed with the same tools as decisions to invest in other assetsRequires comparing costs incurred today with future benefits the “present value” concept is invaluable because benefits may be many years in the future, while costs are immediate25Fig. 13.3The Returns of an MA in Economics010203040-10-20-302030405060100-570MA (b)BA (b)Net returnsto MABenefitsof MACostsof MACostsof MABenefitsof MAAge(a)Age(b)222324252627282930222324252627282930262728Fig. 13.4Wage Effects of an Increase in Postsecondary EnrollmentS1S0DNS0US1UW1UW0UNDW1W0PostsecondarygraduatesHigh-schoolgraduates(a)(b)$$29Labour UnionsA group of workers who bargain collectively with employers for better wages and working conditionsMajor Objective - increase wages But far from the only impactWorking conditions, holidays, benefitsProcedures for promotion, layoff & staffing Grievance & arbitration of workplace disputes30Unions & EmploymentUnion wage premium for workers with the same human capital is about 10%. Impact on labour costs may be much less because unions may also:Contribute to firms hiring workers with more skill and experienceImprove efficiency of bargaining & increase the productivity of workersBoost worker morale, hence productivityReduce turnover of workers, which reduces hiring and training costs31Winner-Take-All MarketsEarnings differentials have grown sharply in many occupations that have workers with similar human capitalWinner-take-all labour marketOne in which small differences in human capital translate into large differences in pay (e.g., entertainment and professional sports)32Compensating Wage DifferentialsTotal “pay” = $ wage + “psychic income”Compensating Wage Differential = difference in the wage rate ( + or - ) due to attractiveness of a job’s working conditions, compared to other jobs that require the same level and type of skillAttractive working conditions mean firm can pay lower money wageSafer jobs pay less than jobs with risksBut tastes differ (e.g. for outside/inside work) so differential depends on the SS & DD for specific characteristics33DiscriminationOccurs when employers have an arbitrary preference for one group of workers, even though all groups are equally productiveIf non-discriminatory employers have lower costs, why don’t they just expand at the expense of discriminating ones (which would bid up the wages of disadvantaged workers until discrimination disappears)? Consumer attitudes (especially in service sector) may enforce stereotypingAn employer who stereotypes and does not hire a labour category will never be proved wrongEmployers who go against industry norms may be perceived as more risky to deal with.34Discrimination – Both Unfair & Inefficient Inequity to the individuals denied equal opportunityInefficient for economy because skills not fully usedCanadian Public Policy on DiscriminationLegislation against discriminationEmployment Equity ProgramsObjective: to help women and minorities get into non-traditional jobs and so prove, by experience, that traditional misconceptions are incorrect.35Reasons for Earnings Differentials: SummaryHuman capitalEarnings typically increase with education, age & experience (but to different degrees in some contexts)Working hours per yearUnion membershipDifferences in working conditionsEmployer Discrimination: Stereotyping employees with respect to their productivityAccess & promotion to desirable jobs 36End of Chapter SlidesConcept Maps meant for student printouts follow.Concept Map slides are also available in pdf format.Slide 13 - 3737What is Chapter 13 about?38I. Equilibrium in the Labour Market39II. Explaining the Differences in Earnings40Summary of Chapter 1341