ECON 208 Lecture Notes - Trade Union, Price Floor, Human Capital

• School: McGill University
• Department: Economics (Arts)
• Course: ECON 208
• Professor: Sebastien Forte

Document Summary

Unions- increased workers bargaining power to restrict output as a group (somewhat like a cartel) Wage differentials in competitive markets: in competitive labour markets, supply and demand set the equilibrium wage and level of employment. Wages will still differ across workers if there are compensating differentials (like language) Changes in market conditions change the costs and benefits of acquiring human capital. Changes in the pattern of human-capital acquisition lead to the changes in the supply of high skilled versus low skilled labour. These changes then erode the wage differentials. As long as human capital is costly to acquire, some wage differentials will persist in equilibrium. Discrimination in labour markets can also explain some wage differentials. Suppose market e (elite) discriminates against a certain group while market o (ordinary) does not. The discrimination will force a flow of some labour from e to o markets.