Labour Flashcards
Becker 1957
Taste discrimination
- if an individual has a taste for discrimination he must act as if he were willing to pay something to not be associated with some groups instead of others
Mincer 1974
Suggests that the rate of return to an additional year of schooling was approximately 10.7% with the peak being at 34 years old
Why is discrimination not beneficial for firms
They lose on two accounts
- they are hiring the wrong type of workers
- they are hiring the hiring the wrong number of workers
What does Becker say will happen to firms who discriminate
In the long run, these firms will be competed out of the market if there are no barriers to entry
Goldberg 1982
Focuses on nepotism where worker 1s wage seems lower than it actually is because they earn a non monetary utility from hiring them
How is discrimination self reinforcing?
With prejudiced firms in the market, it is harder for minorities to find a job with a wage higher than their current job, meaning their reservation wage is lower, meaning they are more likely to accept an offer with a lower wage, this incentivises firms to offer them less
What is statistical discrimination?
- Different treatment of equally skilled workers belonging to different groups due to imperfect information
- firms have to go off averages
Self reinforcing stereotypes
Stereotype of being lazy may lead to less of that group being employed, leading to more unemployment within that group, reinforcing the stereotype that they are lazy
What are the problems with the oaxaca decomposition
- assumes a linear relationship between education and wage
- Ommitted variables leading to biased estimators
Walby and olsen 2002
Why is there gender wage difffences in uk?
- -7.7 years less full time experience compared to men (explains 26% of gap)
- 3.2 years more family care than men (explains 15% of gap)
- 0.3 years less education than men (explains 6% of gap)
Neumark 1996
In a high priced Restaurant a women was 35% less likely to receive an interview and 40% less likely to receive an offer
Goldin and Rouse 2000
Using info from symphony orchestras, found that use of screens increased the probability of a women progressing from preliminary rounds by 50%
25% increase in female composition of major symphony orchestras from 1970 to 1996
Bertrand and Mullainathan (2004)
Chicago and Boston names
- white applicant can expect call back for every 10 ads
- black applicant needs 15
Why would the govt reduce worker utility by introducing health regulations
- workers underestimate the risk they face
- negative externalities associated with injury and death
- with worker compensation and insurance people are willing to accept too much risk
Viscusi 1993
- A 0.1% increase in the probability of fatal injury increases annual earnings by about $7600 in 2007 dollars
- on average, an additional worker for every thousand will die of job related injuries every year
How does the Viscusi study link to VSL
It means 1000 workers are willing to pay 7.6 million to prevent a death
What does the department of health say one QALY is worth
£60,000
Problems with estimating VSL
Cousineau et al (1992) found that omitting injury risk may cause a positive bias in the estimation of the coefficient on mortality risk
In observed characteristics which affect their choice of job risk
What is an implication of the hedonic wage theory?
If everyone in the population agrees on whether a particular job characteristic is good or bad, good characteristics are associated with low wages, and bad characteristics with high wages
Why do compensating wage differentials go the wrong way?
People who earn higher wages are able to purchase job amenities to make the job better
Lazear and Shaw (2007)
Wage inequality has risen markedly mainly due to upper tail of high earners has grown
Spence and Zeckhauser 1971
Principle agent problem
- asymmetric information between the principal (employer) and the agent (employee) giving rise to morale hazard
How can you avoid the principal agent problem risen by spence and zeckhauser in 1971
Piece rate system
Pencavel (1977)
Interprets piece rate system as an on the job screening device for jobs which are hard to monitor employee productivity and where the employee has occasion to shirk
Stiglitz 1975
Derives that piece rate systems will be used more intensively where:
- the risk is smaller
- the degree of risk aversion is lower
- supply elasticity of effort is greater (easier to put in more effort)
Bishop 1987
Benefits of piece rate system:
- serves as incentive for greater effort
- attracts more able workers because they can earn more in this system
- increases probability worst employees will leave
Disadvantages of piece rate system
- production often depends on team effort as opposed to individual
- overemphasises quantity over quality
- employers will have to compensate workers for the volatility of their income
Malcomson 1984
- wages rise more in line with seniority and experience than with productivity
- Organisational pay structures tend to be hierarchical, with less people as you go up the pay, acting as a tournament
Wade et al 1993
Increasing ratio of pay as one moves up the final rungs of the corporate ladder
- 142% wage increase for the person promoted to CEO whereas from VP to next higher level only 43% increase
Audas Et al 2004
Firm operates a well defined internal labour market
Interprets the absence rate as a measure of worker effort
Name two advantages of tournaments over piece rate systems
- only requires ordinal (not cardinal) measure of output. Cardinal measure output is sometimes impossible for management type jobs making piece rate system hard to imploy
- eliminates component of luck (weather, state of economy etc.)
Name two disadvantage of tournaments
Workers may become too competitive among themselves
Disincentivise working together
Peter principle (Peter and Hull 1969)
- Workers are promoted to their level of incompetence where they can’t go any higher
- firms don’t often reverse promotion decisions
- although Lazear argues the lack of reversal means they made right decision
what are the 3 features of tournaments
- prizes are fixed in advanced and not linked to performance
- job positions are fixed in advance
- salaries for the manager position is pre-determined
what is an outright advantage of tournaments?
allows employees to self-select which otherwise would be hard for employers to do
Bognanno 2001
found a high rate of promotion from within
what is a delay compensation scheme
where employee is paid lower than their productivity with hopes of future pay increases (see graph)
what is a problem with delayed compensation?
- workers will only take job if they believe they wont be fired before t*
medoff and abraham 1981
(delayed compensation) wages are higher for senior worker compared to younger counterparts despite no difference in performancerating
Lazear 1986
found that self employed people have flatter age earnings curve because there is no delayed compensation
what is efficiency wages?
where employees pay over the market wage to increase productivity
why would firms engage in efficiency wages?
- in poorer countries it might mean employees can eat more leading to greater productivity
- reduces cost of worker turnover
- attracts higher skilled workers
Raff and Summers 1987
- Ford introduced a 5 dollar a day to increase productivity and reduce worker turnover
- significant increase in productivity and profits
Kruegar 1991
tests the hypothesis that wages and monitoring are substitutes
- company owned restaurants are harder to monitor by owners and thus were more likely to pay above minimum wage
what is the bonding critique
effiicency wages should self destruct in the long run
how much has the number of global migrants increased since 2000
50%
Hicks 1932
workers migrate chiefly because of differences in wages between countries
human capital migration model (Sjaastad 1962)
- individuals calculate the expected present value of migrating and staying put
- if NPV benefits > costs, they will migrate
- costs are made up of relocation expenses and family etc.
Stark 1991
some people migrate to share the risk of across family - work in foreign countries which wages are negatively correlated with local regions
Zimmerman 1995
-push and pull migration
-push-supply migration affects supply curve alone but pull-demand affects demand curve and supply curve becuase migration is involved
Chiswick (1978)
immigrants, although starting with a lower level of earnings than comparative natives, experience higher earnings growth and eventually outperform natives after about 10-15 years
immigration surplus model (see diagram)
- hosts are better off, immigrants contribute more than what they are paid
- although average incomes and wages fall in the country
- although ignores the increase in demand brought over
what does the solow model say about migration on wages
wages decrease due to migration because there are now more workers with the same capital stock
Dustmann et al (2005)
shows an econometric analysis that shows that there is no strong evidence that immigration has overall effects on unemployment or wages
Card 1990
- tried to conduct a natural experiment to get rid of endogeneity problem with immigration
- Cuban exodusto Miami, 7% increase in labour force
- despite this there was virtually no effect on wage or unemployment rate
reasons for decrease in trade union density
- political change (since 80s, legislation has made trade unions weaker)
- de-industrialisation
- new industries arent historically union based
example of recent industrial action
in december 2022, GDP fell by 2.8% in December for health and social work sector - lost 1 million appointments
what do unions want?
- higher wages for members
- higher employment
monopoly union model (see diagram)
- union has a monopoly on the supply of labour and imposes a wage rate on the firm
what conditions will unions be more effective in the monopoly union model?
- when demand for labour is more inelastic (more essential workers)
- low east of substitution from labour to capital
right to manage model implications (see diagram)
- unions end up raising wages, reducing employment and reducing profits
- outcomes on the demand curve will likely not be pareto efficient
efficient bargain model (see diagram)
-makes both wages and employment the subject of bargaining
-Stronger the union the higher wages and employment may be
Oswald (1985)
hard to reconcile efficiency bargain model with actual labour behaviour
what is featherbedding?
when a union engages in practices that require more workers e.g., capping the amount of bricks a bricklayer can lay a day, meaning the firm needs to hire more
Oswald (1987)
only 3 out of 18 unions bargained directly over employment levels
how might Unions create favourable conditions?
- creating monopoly of supply of labour
- increase border controls to reduce supply of labour in industry
- advocate for public ownership
- featherbedding
Blanchflower and Bryson (2003)
- on average, UK mark up for unions is about 10%
- wage dispersion 25% lower in union firms
what are trade unions effect on productivity?
-improves worker morale and co-operation
- worker turnover should be lower
- greater stability in employment encourages firms to invest in human capital
- although could encourage managers to take adveserial approach
