73: Theories of Income Disitribution Flashcards
marginal productivity theory of income distribution
division of income among factors of production is determined by each factor’s marginal productivity at market equilibrium
why do some workers earn more than others? (6)
1) compensating differentials
2) payed equilibrium value of marginal product (diffs in talent)
3) human capital
4) efficiency wages
5) unions
6) discrimination
compensating differentials
wage differences across jobs that reflect that some jobs are less pleasant/more dangerous than others (paid more to compensate for unpleasantness)
unions
organizations of workers that try to raise wages and improve working conditions by bargaining collectively
efficiency wages
when employers pay above equilibrium level wages as and incentive for better performance and loyalty
collective bargaining
negotiating contracts between union members and employers, rather than for all individual
craft union
unions of skilled workers –> harder to replace during strike
closed shop
only union members can be hired (illegal)
union shop
all employees must join the union
right to work laws
laws that prevent union shops
industrial union
union that spans an entire industry
union theory
increase wages by increasing demand or decreasing supply
how to increase demand for labor (3)
1) invest in human capital to inc MP
2) reduce labor substitutes (ex: reduce min wage)
3) advertise product of union workers
how to decrease supply of workers (3)
1) limit union membership
2) licensing to limit ability to enter craft
3) limit immigration