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Understanding Labor Market Frictions: Monopsony, Employment, and Wage Dynamics

This chapter delves into labor market frictions, particularly focusing on the monopsonistic market conditions affecting employment and wages. Key figures illustrate how worker mobility costs influence the labor supply curve and employer strategies in determining profit-maximizing employment levels. The impact of minimum wage policies under monopsonistic conditions reveals the potential for both wage and employment increases. Additionally, data on firm training investments and employee benefits provide insights into labor compensation dynamics, highlighting the interplay between training and productivity.

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Understanding Labor Market Frictions: Monopsony, Employment, and Wage Dynamics

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  1. Chapter 5 Frictions in the Labor Market

  2. Figure 5.1: The Supply of Labor to Firm A: Worker Mobility Costs Increase the Slope of the Labor Supply Curve Facing Individual Employers

  3. Table 5.1: Labor Supply Schedule for a Hypothetical Firm Operating in a Monopsonistic Market

  4. Figure 5.2: A Graph of the Firm-Level Data in Table 5.1

  5. Figure 5.3: Profit-Maximizing Employment and Wage Levels in a Firm Facing a Monopsonistic Labor Market

  6. Figure 5.4: The Monopsonistic Firm’s Short-Run Response to a Leftward Shift in Labor Supply: Employment Falls and Wage Increase

  7. Figure 5.5: Minimum-Wage Effects under Monopsonistic Conditions: Both Wages and Employment Can Increase in the Short Run

  8. Table 5.2: Hours Devoted by Firms to Training a New Worker during First Three Months on Job, 1992

  9. Table 5.3: Employee Benefits as a Percentage of Total Compensation, 2006 (Average Hourly Cost in Parentheses)

  10. Figure 5.6: The Predicted Relationship between MEM/MEH and Overtime Hours

  11. Figure 5.7: Productivity and Wage Growth, First Two Years on Job, by Occupation and Initial Hours of Employer Training

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