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Wage Rate Differentials. Competitive labour markets: Consider two markets with different wages

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Presentation Transcript
slide2

Competitive labour markets:

    • Consider two markets with different wages
    • If there is a free access to a market with higher wage, a worker will move there. It would increase the wages in the low-wage market (because of a reduction in labour supply), and decrease the wages in the high-wage market (because of an increase in labour supply).
    • Yet we know there is non-trivial occupation wage structure.
    • There must be something that prevents the worker’s move from one occupation to another
slide3

Factors to explain wage differentials:

    • Adjustment lag
      • So there is a change in some exogenous variable
      • The change shifts a curve in a market and leads to a new equilibrium
      • If the workers do not move immediately, wage differential exists for a while
      • This wage differential is temporary/transitional
slide4

Labour market barriers:

    • Restrictions on mobility
    • We usually think regulation/law
      • Licence requirement
      • National border
    • But other things may work, too
      • Poor information about labour markets
      • Discrimination
        • Pre-market discrimination
        • Market discrimination
        • Detecting discrimination
        • Does discrimination make sense?
      • Geography
      • Language
      • Closed shop union
      • Government regulation
      • Education/training/licencing
slide5

Compensating wage differentials

    • Jobs that stink
      • Risk of injury/illness
      • Stress
      • Wrong time shifts
      • Lifting heavy things
      • Risk of unemployment
      • Unpleasant environment
    • These produce compensating wage differentials
    • Jobs that are great
      • Opposite to bad
      • Flexible hours
      • Employment security
      • Long vacations
      • Status
      • Fringe benefits
    • These produce equalizing differences
    • It’s all relative
      • Can change within general equilibrium
slide6

Personal characteristics

    • Heterogeneous workers
      • Education
      • Talent/ability
        • Are they ever independent variables?
slide7

Discrimination

    • Is male-female discrimination real?
      • Part-time employment
      • Education
      • Experience
    • If all one can account for is accounted for, the answer is not clear
    • Statistical discrimination
    • In competitive markets, discrimination by employers cannot persist
    • It can persist in non-competitive markets
      • Regulations to preserve discrimination
    • Discrimination due to prejudice by workers may persist in any markets
      • Anti-discriminatory policies are consequential
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