EC120 Lecture Notes - Lecture 18: Marginal Revenue Productivity Theory Of Wages, Marginal Revenue, Wage Labour
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EC120 Full Course Notes
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Ec 120- lecture 18: labour markets and inequality. Labour markets are different: labour contracts are per unit of time- usually no concern with present value. Issues of fairness, socially optimal outcomes affect policy. Value of one additional unit of labour (hourly/yearly/other: marginal product measures quantity produced by an additional unit of labour, marginal revenue measures revenue produced by additional quantity. Marginal revenue product is marginal product times marginal revenue. Firms willing to pay if wage is less than marginal revenue product. Supply of labour is very different in different markets. How narrowly a labour market is defined affects elasticity of supply. Some labour markets require extensive training- supply is more elastic. Intrinsic differences- ability, height, attractiveness: acquired differences- educational differences, compensating differentials- working conditions, discrimination by customers. Temporary differentials: changes in prices changing marginal revenue product, discrimination by employers in a competitive market. Perfect competitive labour markets: many buyers (firms), many sellers (workers)
