the labor market chapter 16 © 2016 cengage learning. all rights reserved. may not be copied,...

The Labor MarketCHAPTER 16

© 2016 CENGAGE LEARNING. ALL RIGHTS RESERVED. MAY NOT BE COPIED, SCANNED, OR DUPLICATED, IN WHOLE OR IN PART, EXCEPT FOR USE AS PERMITTED IN A LICENSE DISTRIBUTED WITH A CERTAIN PRODUCT OR SERVICE OR OTHERWISE ON A PASSWORD-PROTECTED WEBSITE FOR CLASSROOM USE.

Individual Labor Supply


Households supply labor. People in the households allocate their time to work for pay or not to work (leisure time).

This leads to individuals having to make a labor supply decision based upon the labor-leisure tradeoff.

The backward-bending labor supply curve results because a person is willing and able to work more hours as the wage rate increases until, at some sufficiently high wage, the person chooses to work fewer hours.

The person feels that he or she has enough income, and would rather have more leisure time. At a high enough wage rate, the person feels that he or she can afford to take more leisure time.


The Backward-Bending Labor Supply Curve

Labor Market Supply


If the labor supply curve for each individual slopes upward, then the market supply curve -- the sum of all individual supply curves -- also slopes upward.

The labor market supply curve slopes up because the number of people willing and able to work rises as the wage rate rises and because the number of hours that each person is willing and able to work rises as the wage rate rises, at least up to some high wage rate.

Labor Market Equilibrium


Wage Differentials


If all workers were identical, if all jobs were identical, and if all information were perfect, there would be no wage differentials—all workers would earn the same wage.

The reasons for wage differences include compensating wage differentials and differences in individual productivity.

Days Away from Work


Most Dangerous Jobs


Compensating Wage Differentials


Compensating wage differentials: wage differences that make up for the higher risk or poorer working conditions of one job over another.

Some jobs are more dangerous or more unpleasant. Workers demand higher wages to be willing to supply their labor to these jobs.

The supply curve of labor for these jobs lies above the supply curve of labor for less desirable jobs.

This results in a higher equilibrium wage and an equilibrium differential—the compensation the worker demands and gets for undertaking the riskier, less desirable job.

Compensating Wage Differentials


Human Capital


People differ with respect to their skills.

These difference influence the level of wages for two reasons:Skilled workers have higher marginal productivity than unskilled workers, and the supply of skilled workers is smaller than the supply of unskilled workers.

As a result, skilled workers will receive higher wages than unskilled workers.

The expectation of higher wages will induce people to acquire human capital—skills and training acquired through education and on-the-job training.

Human Capital


Investment in Human Capital


Just as firms invest in physical capital, we say that individuals invest in human capital.

These individuals are purchasing education and training in order to achieve higher output and income in the future.

As with all other economic decisions, the decision to invest in human capital is made in terms of whether the expected benefits will exceed the costs.

Income Profiles and Educational Level


Outsourcing


The knowledge economy makes it possible for many jobs to be performed anywhere in the world and then transmitted electronically wherever it is demanded.

If the work can be done as well in India or China at a much lower price, companies in the U.S. and other developed nations will purchase the work from these countries.

As a result, an increasing number of jobs are being done offshore. This is called outsourcing or offshoring.

Offshoring


Outsourcing is the process of purchasing services from another firm rather than employing someone to do the service inside the firm.

Outsourcing is called offshoring when the jobs are purchased from a firm in another country.

The Dynamics of Offshoring


Immigration


People leave their home country and go to another country primarily because they seek a higher quality of living.

Their own country may be politically repressive or economically stagnant, or there may be no upward mobility among income classes in their home country.

Foreign-Born Population of the United States


Illegal Immigration in the United States


Controlling Immigration


The Immigration Reform and Control Act of 1986 (IRCA) was the first to address the issue of illegal immigration. It introduced penalties for employers who knowingly hire illegal immigrants.

The United States currently admits about 700,000 immigrants annually as legal residents who will be eligible to apply for citizenship after living in the U.S. five years.

Only about 110,000 of those receiving green cards do not have family members who are U.S. citizens. Of these, about 65,000 are highly skilled workers and about 44,000 are low-skilled workers.

Unskilled Labor Market and Illegal Immigration


Illegal Immigration Effects


When the cost of labor declines, the costs of doing business also decline.

As firms increase output and new firms enter the business, the market supply of the products being produced by the unskilled labor will rise and the market price of the good or service will decline.

Costs of Illegal Immigration


The effects of illegal immigration on unskilled workers

The property damage caused by the illegal immigrants sneaking into the U.S.

The expenditures on health care for immigrants at emergency clinics and hospitals, which are unable to legally deny care to anyone or to inquire whether one is a legal resident

The expenditures on public education caused by the children of immigrants attending public schools

Burglary and other crimes committed by illegal immigrants

Benefits of Illegal Immigration


The lower prices on some goods and services

The taxes they pay. Since 2002, the suspense file, a slush fund for social security payments without matching numbers, has been growing at more than $60 billion a year.

Border Enforcement


As illegal immigration has increased, so have government expenditures on border enforcement.

Between 1986 and 2005 the U.S. Border Patrol more than tripled in size and the hours spent patrolling increased more than eight times.

Discrimination


Discrimination is a form of prejudice that occurs when factors unrelated to marginal revenue product affect the wages or jobs that are obtained. It is another reason for wage differentials.

Discrimination is costly in that less productive employees or more expensive but not more productive employees are used by the firm. It is contrary to profit maximization.

Discrimination may be personally based or statistical.Personal discrimination is based upon prejudices on the part of employers, fellow workers, or customers.Statistical discrimination results when an indicator of group performance is incorrectly applied to an individual member of that group.

Discrimination


Occupational Segregation


Statistical discrimination and imperfect information can lead to crowding—forcing a group into certain kinds of occupations.

At one time, women were pushed into secretarial, clerical, or support roles.

The separation of jobs by sex is called occupational segregation.

Wage Differentials and Government Policies


With the Civil Rights Act of 1964 it became unlawful for any employer to discriminate on the basis of race, color, religion, sex, or national origin.

Exceptions are only permitted in cases where religion, sex, or national origin is a bona fide occupational qualification for the job.

Tests of Discrimination


Disparate treatment: treating individuals differently because of their race, sex, color, religion, or national origin.

Disparate impact: it is the result of different treatment, not the motivation, that matters.

Comparable Worth


The persistent wage gap between men and women has led to another approach— “equal pay for equal work.”

More formally, this is called comparable worth—the pay ought to be determined by the job characteristics rather than by supply and demand, and jobs with comparable requirements should receive comparable wages.

Proponents of this approach argue that market-determined wages are not appropriate because of the market’s inability to assess marginal products.

Opponents argue that interference with the function of the labor market will lead to shortages in some occupations and excess supplies in others.

Comparable Worth


the labor market chapter 16 © 2016 cengage learning. all rights reserved. may not be copied,...

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individual labor supply

households supply labor

labor market supply

labor supply decision

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labor supply curve results

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