6.7 discrimination/ differentials in the Labour Market Flashcards
what is wage discrimination?
paying different workers different wage rates for doing the same job
why is wage discrimination possible in imperfectly competitive markets?
as employer possess sufficient market power to reduce their total wage bill, they do this by paying each worker the minimum he/she is willing to work for.
why is wage discrimination possible in monopsony market?
where a group of workers is systematically paid a wage below their marginal revenue productivity due to the employer exploiting their monopsony power
what condition has to be met to achieve wage discrimination?
employers to be able to identify and separate different groups of workers who are supplying the same type of labour, employers do this by exploiting low levels of labour market knowledge workers may have and exploiting employees ability to shop around among employers.
what are some types of wage discrimination
race and gender
why do men earn more than women?
women work in low paid industries and occupations (part time, public sector work), as women are under-represented in higher paid posts so don’t go into that sector
some cases women are paid less for doing the same job
women more in and out of the labour force (pregnancy) so lose skills, lose experience, MRP may reduce or stagnate
increase in supply of labour of female workers
discrimination
why do some ethnic groups earn more than others?
minority groups on average are less qualified so have less MRP
lack of language proficiency (cant speak countries language) reduces productivity and employability
stay in low paid professions, have no promotion prospects
living in poor areas, where employment prospects are low
reluctant to migrate due to family
discrimination
what are the advantages of wage differentials?
incentives, gain skills to get better jobs by boosting MRP
trickle down effect, creates jobs, high earns pay high taxes, high earners spend
encourages enterprise, risk for reward for higher incomes, creates new tech,
encourages work not welfare (benefits)
promotes efficient allocation of resources, labour will move where labour is most productive to where the wages are higher
what are the disadvantages of wage differentials?
income inequality, bad will increase govt welfare spending, reduces growth in long run as poor have higher MPC so if low wages no spending in economy, social cost higher crime, depression rates
trickle down effect may not occur (recession), high income will save as they have high MPS
government solutions limited if their are monopsonist employer so wages will always be low in fear of inflation
