Chapter 19

11. Explain the determinants (Compensating Differentials and Ability, Efforts, and Chance) of Equilibrium wages. Please, demonstrate your explanations with some of your examples.
Compensating S of labor for easy, fun + safe greater than S of labor for hard, dull + dangerous jobs.

a) Ex: you are looking for job. 2 kinds of jobs are available. You can take job in lib-y in university or you can take job as garbage collector in this university. Wages are the same. You will choose 1st job. It clear, safer + easier. Comp-ting diff-al difference in wages that arises to offset nonmonetary characterisics of diff-t job.

b) Ex: Electron paid more than workers, because it more dangerous. Doctors, who work of night paid more than simple doctor. Surgeon gets higher wage than podiatrist. City teachers ability to teach students more efficiently. They have stable knowledge, experience + they were educated by great professors abroad

c) Effort. Some people work hard, other lazy. We shouldn’t be surprised to find that those who work hard are more productive and earn higher wage. Companies give bonus to wage if their worker work very good.

d) Chance - plays role in determining wages. If person attended trade school to learn how to repair refrigerators with vacuum tubes, then found this skill made obsolete by the invention of solid-state refrigerators, he would end up earning low wage compared to others with similar years of training. Low wage of this worker due to change-phenomenon that economists recognize but don’t shed much light on.

12. Explain in detail what Human Capital and Signaling mean. Expand your answer by differentiating the relationship of these two to the productivity. As an example, you can explain the theory that education acts as a signaling device. How does this contrast to the theory of education as an investment in human capital?

human capital. In most developed countries relationship between the level of wages and education is highly interdependent.
Many young people and their parents spent a lot of money for their education in the hope that in the future all of the costs will be paid back. f\ex., college graduates in the US earn almost twice as much as those workers who ended their education with a high school diploma.
Signaling. Signaling it is opposite of human capital.
According to this alternative view, when people earn a college degree, for instance, they do not become more productive, but they do signal their high ability to prospective employers. Because it is easier for high-ability people to earn a college degree than it is for low-ability people, more high-ability people get college degrees. As a result, it is rational for firms to interpret a college degree as a signal of ability

13. Please, give your detailed explanation why a worker’s wage might be above the level that balances supply and demand. Minimum wage, Market power of labor unions and Efficiency wages.

Why worker’s wages are assumed to adjust to balance labor S and labor D. But this assumption does not always apply. For someone wages are set above level, brings S versus D into equilibrium. Workers are not affected because their equilibrium wages are well above legal minimum workers least skilled minimum wage laws raise wages above the level they would earn in an unregulated labor market.

Wages rise above equilibrium market power of labor unions. Union is worker association that bargains with employers over wages and working conditions. Unions often raise wages above level that would prevail without a union, perhaps because they can threaten to withhold labor from the firm by calling a strike.

Efficiency wages. Firm can find it profitable to pay high wages because doing so increases the productivity of its workers. High wages may reduce worker turnover, increase worker effort, and raise quality of workers who apply for jobs at the firm. Firms may choose to pay their workers more.Result is a surplus of labor, or unemployment.

14. Explain the role Customers and Government play in perpetuating discrimination in Labor markets. Moreover, when and why sometimes Employers discriminate in the Labor market. Examples are a MUST.

Competitive markets contain a natural remedy for employer discrimination. The entry into the market of firms that care only about profit tends to eliminate discriminatory wage differentials.

These wage differentials persist in competitive markets only when customers are willing to pay to maintain the discriminatory practice or when the government mandates it.

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