Minimum Wages and Non-Comp Labour Supply

Question 1

Outline: three types of MWs

Answer 1

National, government-legislated (perhaps after consultations
with trade unions and employersâ associations).

National, outcome of collective bargaining agreements and
extended to all workers.

Industry-level minimum resulting from industry-level collective
bargaining and extended to all workers in that industry

Question 2

Outline: evidence on MWs

Answer 2

Early literature: a 10 percent increase in the minimum wage reduce
employment by 1-3 percent (not very big effect)

More recent studies (with more credible estimation strategies) are less
likely to find effects

Question 3

Is the MW an effective anti-poverty tool?

Answer 3

Ambiguous effect: studies say it is not

Study for US found that only 10% of MW earnings increase went to families below poverty line

Question 4

Outline: monopsony

Answer 4

Employer faces little competition for workers from other firms and has market power in market for labour

Monopsonist faces an upward-sloping labour demand curve

Monopsonist must pay higher wages in order to attract more workers

Question 5

Outline: two types of monopsonistic firms

Answer 5

1 - Perfectly discriminating monopsony: can hire different workers at different wages
2 - Non-discriminating monopsony: must pay all workers the same wage

Question 6

Outline: Nondiscriminating Monopsonist

Answer 6

Must pay all workers the same wage, regardless of each worker‘s reservation wage

Must raise the wage of all workers when attempting to attract more workers

The marginal cost of hiring exceeds the wage, i.e. the MC curve lies above the supply curve

MC involves not only the wage paid to the additional worker but also the increase in wage to pay to the existing workers