ECON 208 Chapter Notes - Chapter 14: Market Clearing, Human Capital, Longrun

• School: McGill University
• Department: Economics
• Course: ECON 208
• Professor: Alex Hale

Document Summary

In competitive labour markets, supply and demand set the equilibrium wage and level of employment. No worker or firm can affect the market wage. In practice, we have many kinds of workers and many kinds of jobs: series of labour markets with wage differentials. Reasons for wage differentials: working conditions (compensating differentials, inherited skills, human capital (formal education, on-the-job training, discrimination. Wage differentials can be temporary or exist in long-run equilibrium labour mobility erodes temporary wage differentials. Working conditions risk and unpleasantness reduce the supply of labour, thus raising the wage above what it would otherwise be. Different working conditions in different jobs lead to compensating differentials these wage differentials are not temporary, they are equilibrium wage differentials. Inherited skills large i(cid:374)(cid:272)o(cid:373)es (cid:449)ill (cid:271)e ear(cid:374)ed (cid:271)(cid:455) people (cid:449)ho ha(cid:448)e s(cid:272)ar(cid:272)e skills that (cid:272)a(cid:374)"t (cid:271)e taught a(cid:374)d are in high demand (e. g. basketball players, actors)