wage differentials and labour market imperfections Flashcards
What would happen if all labour markets were perfectly competitive?
What are two assumptions we make about perfectly competitive labour markets?
If all labour markets were perfectly competitive there would be no difference in wages at all
Assumptions:
All workers are homogenous
There is perfect mobility of labour
In a perfectly competitive labour market there is no…
In a perfectly competitive labour market there would be no wage differentials
In the real world there is… because of…
In the real world there are wage differentials that means there are market imperfections
Why do we need to understand the concepts of perfectly competitive markets and labour markets?
Perfectly competitive labour markets give us a benchmark to compare real world labour markets to
what are the 5 market imperfections in the real world?
Labour is not homogenous as all workers are different with different MRPs
non monetary considerations
labour is not perfectly mobile
trade unions and supply restrictions
monopsonies and wage setting abilities
why is labour not being homogenous a market imperfection?
labour is not homogenous as all workers are different and different MRPs so different wages
supply of labour is different in different professions (elasticities) may effect wages
there is discrimination
why is non monetary considerations a market imperfection?
pension plan
holidays
overtime
flexibility with working hours
etc
why is labour not being being perfectly mobile a market imperfection?
often occupationally immobile as not all workers have the same skills and qualifications
geographical immobility as there may be regional differences in wage rates
there is imperfect knowledge
why is trade unions a market imperfection?
they bargain for higher wages
lots of workers in a given profession
push up wages
why is monopsonies a market imperfection?
one dominant employer in a given profession
wage setting power can be used to drive down wages
what is a compensating wage differential?
in hard working difficult professions wages tend to be higher to compensate for the tough conditions
