wage determination 3.5.3 Flashcards
define wage determination in a perfectly competitive market?
firms are operating in a perfectly competitive labor market and operating in a perfectly product market
In wage determination what happens to firms?
they are price takers and wage takers, they have to charge and set the price by the market
give an example of how wage determination works?
Wage determinatio
£10 price set by the labour market
£20 wage set by the labour market
-for instance a burger merge company is working under a perfect competitive market where they are earning 20 pounds regardless the amount of workers
how do you draw the wage determination curve?
industry:
label the x-axis workers
label the y-axis as real wage
draw a normal supply and demand curve where you draw a horizontal curve at 20 pounds
-then draw the horizontal curve around the MRP curve
the reason why you draw two curves is to show that under an industry how multiple firms are joined where their equilibrium is at 20 pounds
-this applies to an individual burger company at 20 pounds
-firms will make efficient decisions to maximize the revenue brought in from workers where MRP=MC for labor.
define wage differentials in imperfect competition?
wage differentials exisiting under perfect competition shows that labour market imperfections exist
one type labor is not homogenous for imperfect competition?
supply of labour of labour is different since some profession require qualifications where it will not be suitable to switch so wages act as a compensation.
discrimination- imperfect competition?
gender inequality, race, ethnicity these differences exist which is why there might be wage differentials
non-monetary considerations?
it is not only wage that people consider before taking a job they look into other aspects e.g working hours and holiday goods depending on this they will see whether the work is suitable, if this isn’t the case then it will lead to compensating wages like surgeons
labor is not perfect mobile?
occupational immobility- it is difficult to change jobs in an industry because you have to consider qualifications and time consumption e.g bus drivers cannot become doctors straight away
-geographical immobility- some may find it difficult to move between other countries even if wages are high because of comfortability, language barriers, and many other reasons
trade union?
some workers may think that wages they are getting paid are unfair if trade union supports their claim they are able to gain more power and ask for higher wages.
monopsony?
well in a monopsony market they are able to set prices at any rate they want which gives them the setting price power
