Textbook Guide Economics: Efficiency Wage, Human Capital, Price Floor

247 views5 pages
1 Dec 2016
School
Department
Course
Professor

For unlimited access to Textbook Notes, a Class+ subscription is required.

Earnings and Discrimination
Some Determinants of Equilibrium Wages
o Difficult and dangerous jobs tend to have greater equilibrium wages;
the difference between wages that is resultant from nonmonetary
characteristics in different jobs is called the compensating
differential.
o The accumulated investments on people or the human capital is
important to an economy’s production.
o The ability, effort, and chance of the average worker affects the
wage of labor in a market.
Education typically increases the workers’ wages from a
human-capital view because it increases productivity;
alternatively, education could also signal a higher ability to
employers, thus resulting in higher wages.
o Minimum-wage (price floor) legislation can cause above-equilibrium
wages.
Worker associations that negotiate with employers over wages
and working conditions, known as unions, can be responsible
for minimum-wage legislation.
Unions can organize large withdrawals of labor, known
as strikes, from a firm in order to achieve their goals.
o The theory of efficiency wages suggests that increasing wages
above equilibrium can possibly boost the productivity of a firm’s
workers.
The Economics of Discrimination
o In economics, discrimination is the offering of different
opportunities from the marketplace to similar individuals who may
differ by race, ethnic group, sex, or other personal and social
characteristics.
Discrimination is typically a result of political decisions, not
economic decisions; the former usually results in economic
deprivation. As a result, discrimination does not typically occur
in the labor market but before an injection.
o Discriminatory wage differences can disappear due to competitive
labor markets; a discriminating employer will usually see the
potential employee move to another firm.
Wage differences persist in competitive markets when
customers are willing to pay to maintain their
find more resources at oneclass.com
find more resources at oneclass.com
Unlock document

This preview shows pages 1-2 of the document.
Unlock all 5 pages and 3 million more documents.

Already have an account? Log in
bigotry/discriminatory practice at specific firms or when the
government mandates it.
Review Questions
1. Define a compensating differential and give an example illustrating this
definition.
Compensating differential is the difference in wages that arises to offset the
nonmonetary characteristics of different jobs.
An example is when coal miners and fire fighters are paid more than other workers
with similar education to compensate them for the extra risks.
2. What is human capital? Why is human capital important?
Human capital: the accumulation of investments in people, such as education and on-
the-job training. Human capital affects productivity, and thus labor demand and
wages.
3. Two reasons for above-equilibrium wages are the minimum wage and
unions. Briefly explain both terms.
Minimum wage laws
The minimum wage may exceed the equilibrium wage of the least-skilled and
experienced workers
Unions
A worker association that bargains with employers over wages and working
conditions. Unions use their market power to obtain higher wages; most union
workers earn 10-20% more than similar non-union workers.
4. What are efficiency wages?
Efficiency wages are above-equilibrium wages paid by firms to increase worker
productivity
find more resources at oneclass.com
find more resources at oneclass.com
Unlock document

This preview shows pages 1-2 of the document.
Unlock all 5 pages and 3 million more documents.

Already have an account? Log in
Unlock document

This preview shows pages 1-2 of the document.
Unlock all 5 pages and 3 million more documents.

Already have an account? Log in
Unlock document

This preview shows pages 1-2 of the document.
Unlock all 5 pages and 3 million more documents.

Already have an account? Log in

Get access

Grade+
$10 USD/m
Billed $120 USD annually
Homework Help
Class Notes
Textbook Notes
40 Verified Answers
Study Guides
1 Booster Class