5. Imperfectly Competitive Labour Markets Flashcards
In a perfect labour market what is the worker’s surplus
W-Wr=0
In a perfect labour market what is the firms surplus?
y-w=0
In an imperfect labour market what is the total surplus of of workers and firms?
Y-Wr>0
What is the elasticity of a labour supply curve for an individual firm in a competitive market?
Perfectly elastic, a firm which attempts to pay less than W would lose all of its workers immediately
Why might the labour market not be perfectly competitive?
- mobility costs
- heterogeneous preferences
- search costs
- efficiency wage models
Monopsony
Where there is one buyer of labour, employers face an infinitely elastic labour supply
What is the relationship between VMPe and wage in an imperfect market?
VMPe=w(1+1/elasticity of labour supply)
In a competitive market what is the relationship between VMPE and wage?
VMPE=wage
At what wage and employment level will a firm with an inelastic labour supply curve operate at?
They will pay low wages and hire less workers
What is the equation for the number of workers in a firm at time t given by the simple dynamic model?
Et=Et-1(1-s(w))+R(w)
In a steady state of employment what is true?
Et=Et-1=E
E=R(W)/s(W)
What did the VA hospital natural experiment find?
The elasticity of supply is about 1
What does the the natural experiment of the VA hospitals tell us about competitive markets?
We can reject the idea of a perfect competitive market since when wages went up we would expect a decrease in employment but this wasn’t the case
When does minimum wage increase employment?
When the market is imperfect and for small increases in minimum wage
