Labour markets- wage diffrentials Flashcards
1
Q
Reasons for wage diffrentials
A
- Labour is not homogenous - different MRPs, supplies of labour and discrimination
- Non-monetary considerations- holidays, company cars, flexible hours
- Labour not perfectly mobile- occupational and geographical immobility and imperfect knowledge (where the highest wages are).
- Trade union power
- Monopsony power
2
Q
Why footballers get paid more than teachers?
A
- Higher MRP
- Footballers are not homogenous
- Inelastic football supply
- Teachers- employed by a monopsony (governement)
- Vocational element to teaching- non-monetary
- Teachers reluctance to strike
3
Q
Why a north and south wage divide?
A
- South- more financial service jobs (higher MRP)
North- more manufacturing (lower MRP) - Geographical and occupational immobility
- Negative multiplier/ accelerator effects
- Only most productive will migrate down south.
4
Q
Advantages of wage diffrentials
A
- Incentive- to educate, get skills…
- Trickle down effect- multiplier, high taxes leads to high gov spending, job creation
- Encourages enterprise- leads to long run low costs and low prices, job creation
- Encourages work not welfare
- Promotes efficient resource allocation
5
Q
Disadvantages of wage diffrentials
A
- Income inequality- poverty, higher benefits, more social problems, lower growth
- Trickle down effect may not work (rich have high MPS) (tax evasion) (repatriation of profits)
- Gov solutions limited if they are monopsonist employer.
6
Q
Minimum wage pros
A
- Poverty alleviation
- Reduce wage diffrentials
- Incentive to work
- Gov fiscal benefit- more tax rev and less benefits
- Improved productivity
- Incentive for firms to boost human capital
- Counter monopolist employer
7
Q
Minimum wage cons
A
- Unemployment BUT elasticity
- Youth lose out the most with a lower MRP
- Those on NMW may ask for higher wages to keep wage differential
- Business costs- less competiveness and shutdown threat
- Regional differences
- Hit to gov finances given state employment
