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The Labor Market

The Labor Market. Where does that wage come from?. What determines the wage?. The interaction of labor supply and labor demand . Wage. S L. D L. Number of Workers. Equilibrium. Also called the market clearing wage When Q S L = Q D L Disequilibrium When Q S L = Q D L.

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The Labor Market

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  1. The Labor Market Where does that wage come from?

  2. What determines the wage? • The interaction of labor supply and labor demand Wage SL DL Number of Workers

  3. Equilibrium • Also called the market clearing wage • When QSL = QDL • Disequilibrium • When QSL = QDL

  4. At Disequilibrium can have… • Shortage (too few workers) • QSL < QDL • Wage too low • Wage must increase to rid shortage • Surplus (too many workers) • QSL > QDL • Wage too high • Wage must decrease to rid surplus

  5. Moving to Equilibrium Wage Surplus SL Equilibrium DL Shortage Number of Workers

  6. Moving to Equilibrium • If we have a surplus, wage must _______ to get to equilibrium. • Decrease • If we have a shortage, wage must _______ to get to equilibrium. • Increase

  7. In-class exercise 8 Supply and Demand of Labor

  8. What about other countries?

  9. Why the difference? • Labor force structure • More physical (male oriented) • Gender earnings ratio would? • decrease • More service (female oriented) • Gender earnings ratio would? • increase • Occupation sex structure • Are women in the low wage jobs? • Gender earnings ratio would? • decrease

  10. Degree of modernization • Is women’s major focus still seen as in the household? • Gender earnings ratio would? • decrease • Gender ideology • Are there certain male jobs vs female jobs • Does society frown on women working? • Gender earnings ratio would? • decrease

  11. What can explain the differences between men and women? • Two theories… • Individualist theory • Women possess attitudes, preferences and qualifications that make them less productive and less desirable to higher wage jobs • No discrimination • Difference from preference for ideal job by men and women • Individual is at fault • Supply Side

  12. Types of Individualist Theories • Neoclassical Theory • Men and women are free to choose • Amount of education to obtain • Time to stay in the labor market • To work full or part time • How these things are chosen determines wage • Men and women choose different amounts

  13. Does work effort by men and women differ on average? • Work effort: how much time men/women plan to spend in the labor force • Men • Spend more time in labor force • Have more physical jobs • Have more full time work • All increase wages

  14. So…why are women are in the “low wage” occupations?? • Remember the female occupation formula?? • To avoid physical (labor) or nonphysical (high stress) disamenities • Gain better working conditions • Bad working conditions usually have high wages to entice people to take job • Less depreciated knowledge if drop out of labor market for some time • atrophy

  15. Atrophy • How many of you took 5th grade math? • It was claimed that the shepherd was the shepherd of 2000 sheep. The shepherd exclaimed, "I am not the shepherd of two thousand sheep!" Pointing to his flock, he added, "If I had that many sheep plus another flock as large as that, then again half as many as I have out there, I would be the shepherd of two thousand sheep." How many sheep were in the shepherd's flock? • X+X+(1/2X) = 2000 or X = 800

  16. Second Individualist theory • Status Attainment • Sociologists attempt to link characteristics of a person (race, sex..) to status in labor force • Pre-market discrimination inhibits people from getting certain skills (discrimination exists) • BUT choices made by individuals prior to entry to job pushes men to be more successful

  17. If true… • Why is the gender gap decreasing??? • Are women now making different (better) choices? • Yes… • More education • More experience • More On the Job Training • All which increases wages

  18. Institutionalist Theory • Individual is not at fault…ECONOMY IS • Employers, employees, or customers have a taste for discrimination • Mechanisms in the labor market that restrict choice and competition for jobs • It is how firms demand their labor not how people supply their labor • Demand side

  19. Types of Institutionalist theories • Labor market segmenting theories • Wages are determined by the sector one is in • Internal labor market • Administrative decision of where you are put • Primary sector ( increasing wage, OJT, unions, promotions) • Secondary sector (constant wage, no OJT, no unions, dead end job) • Women almost twice as likely to be in secondary

  20. Second type • Occupation Segregation • Jobs vary according to the sex composition • Why? • Employer wants certain types of workers • Employees want to work with certain types of workers • Customers want to deal with certain types of workers • Graphs (discrimination vs. non-discrimination case)

  21. Ls’ Wage Wage Ls Ls Ls’ W2 W1 W1 W2 Ld Ld 2 1 # workers 1 2 # workers Firm does not Discriminate Firm Discriminates

  22. Third type of Institutionalist theory • Statistical discrimination • Discrimination against a class of persons because of group rather than individual characteristics • Ex. On average women tend to leave a job after 3 years • Interpretation is that ALL women tend to leave a job after 3 years • Hard to overcome because it is an attitude

  23. End of Material for Midterm

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