Term 1 - Chapter 3 & Chapter 4 Flashcards
What are the features of classical S&D?
- Unemployment is voluntary: people looking for jobs (frictions) or learning about conditions
- Wages move smoothly
- distinguish nominal and real wages - people negotiate nominal wages so as to achieve a given real wage (adjusted for inflation)
- nominal wages sticky (Keynes): people don’t like having nominal wages cut
Draw the Keynesian S&D graph and explain
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Draw the wage adjustments graph and explain
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Draw a graph highlighting how inflation is pointless
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Draw the compensating wage differentials graph and explain
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Draw the optimum accident rates graph and explain
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Explain what the statistical value of life is
Statistical value is estimated to be around £10million: if a firm is at risk of 1 worker death per year, they will pay an extra £10m in compensating wage differentials across all workers
Draw the GINI coefficient graph
Look at notes
What is the GINI coefficient equation?
Area A / (A+B)
where 0 = perfect equality and 1 = perfect inequality
Draw diagrams to show inequality issues between skilled and unskilled workers
Look at notes
Inequality issues in the UK
- UK has high & growing inequality (other EU countries not so bad)
- those in bottom 10% have improved absolutely in real terms
- UK has good job creation: countries with more equal incomes have more ‘job inequality’
Is the NMW a cure for income and earnings inequality?
- Most UK inequality growth is at the top end - out of range of the NMW
- Many poor homes do not work
List some of the factors behind why some people have higher wages than others
- skill
- globalisation
- technical progress
- disequilibrium
- CWDs
- government policy (NMW)
What is the principal-agent problem?
Agents pursue own objectives (principal knows more than the agent)
- sometimes sick
- sometimes need to be dismissed
Draw the piece rates v times rates graph and explain
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Explain some of the features of piece-rate pay
- Linking CEO pay to share prices via stock options is a form of piece-rate pay
- In UK, piece rates more likely for women (shorter service, so deferred pay less possible)
- More piece rates in large firms (can pay to set up system)
- Adverse feelings for performance related pay in public sector because of distrust of management - how to measure ‘performance?’?
Draw the deferred pay diagram and explain
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What are explicit contracts?
Court-enforceable
- cannot cover all contingencies
Explain the features of ILMs
- relate to large firms - wages not closely linked to S&D but set bureaucratically
- ILMs mean: long-term contracts, promotion from within, seniority pay, last in first out, low quit rates
- large firms have ‘arms-length’ relationships with workers, so need different systems of motivation and governance
Draw the fringe benefits diagram and explain
Look at notes
Identify some fringe benefits
simply another form of pay
pensions holiday pay sick pay maternity pay health care family-friendly working conditions company car
other fringes: participatory management, flexitime, coy training schemes
What are efficiency wages?
Wages > alternative MRP (meant to have beneficial efficiency/motivational effects
- If W > alternative MRP, workers have more to lose if fired, so tight supervising is not needed to prevent shirking
- but markets do not clear if efficiency wages are paid: unemployment is then required as a disciplinary device
- efficiency wages expected where supervision is difficult e.g. large firms
Is deferred pay theory the same as efficiency wages?
Deferred pay theory has elements of efficiency wages (senior workers have W > alternative MRP)
- but, under deferred pay theory, markets clear (no unemployment) since low pay when junior, balances high pay when senior
Since effort is generally hard to measure (piece rates), other methods of motivating people are used…
supervision, promotion ‘tournaments’, deferred pay, worker involvement and good fringes (improve moral and secure effort)
