Economics 325             Labor Economics Study Guide                          Chs. 5-7

 

Terms to define, identify or explain:

 

  1. derived demand for labor
  2. short-run and long-run production functions
  3. total, marginal and average products of labor
  4. law of diminishing returns
  5. zone of production
  6. marginal revenue product and the demand for labor
  7. value of the marginal product
  8. competitive demand for labor
  9. imperfectly competitive demand for labor
  10. long-run demand for labor: output and substitution effects
  11. factors that make the long-run demand for labor more elastic than the short-run demand
  12. market demand vs. firm demand for labor
  13. elasticity of demand for labor and the total wage bill rules
  14. factors that affect the elasticity of demand for labor
  15. determinants of the demand for labor
  16. Gross substitutes, gross complements
  17. perfectly competitive labor market
  18. determinants of the supply for labor
  19. average wage cost and marginal wage cost
  20. MRP = MWC rule
  21. efficient allocation of labor
  22. monopsony, pure and joint
  23. Davis-Bacon Act
  24. union shop clause
  25. right-to-work law
  26. occupational licensure
  27. bilateral monopoly
  28. countervailing power and coalescing power
  29. cobweb model of wage dynamics
  30. fringe benefits, in-kind payments
  31. isoprofit
  32. principals, agents, principal-agent problem
  33. shirking
  34. monitoring
  35. piece rates, time rates
  36. commissions, royalties, bonuses, profit sharing, tournament pay, equity compensation, stock options
  37. free-rider problem
  38. efficiency pay
  39. labor turnover

 

Discussion questions:

 

Chapter 5 end-of-chapter review questions:  1, 3, 4, 5, 12

Chapter 6 end-of-chapter review questions: 1, 2, 3, 5, 6d & e, 7, 9, 10, 11, 14

Chapter 7 end-of-chapter review questions: 2, 3, 5, 6, 7, 10, 11, 12

 

  1. What is the significance of Hamermesh’s (see p. 148) conclusion that the overall long-run demand for labor in the US is one?  Check back to #13 above.  Do you think that the demand for minimum wage workers would have a higher or lower elasticity of demand than average, that is, are there more or fewer substitutes for minimum wage labor than for more specialized labor?  What seems to be the estimates of the elasticity of demand for minimum wage labor? What is the significance of this elasticity?  Do minimum wage workers, as a group, get higher or lower pay as a result of a minimum wage hike?  Again, check #13 above.
  2. Why do labor supply curves, when the product and labor markets are perfectly competitive, reflect the marginal opportunity cost of labor?
  3. Summarize the determinants of labor supply and labor demand—see Table 6.1—  and explain their effects on market equilibrium.
  4. Explain the hiring decision of a firm in terms of MRP and MWC.  Why will MWC be flat in a perfectly competitive labor market?
  5. Why does a perfectly competitive labor market, when combined with a perfectly competitive product market, give us an efficient allocation of labor across labor’s possible uses?
  6. How does the hiring decision differ when the product market is imperfectly competitive instead of perfectly competitive?  What is the allocative inefficiency when the product market is imperfectly competitive?
  7. Why does it seem as if there is a constant shortage of labor in monopsony markets, such as the market for nurses in towns with only a few hospitals, using a diagram like that in Figure 6.7?
  8. Unions can raise wages by increasing demand for their labor or restricting supply of their labor.  How can they achieve each of these?  How do these relate to Table 6.1? What are some restrictions they may face?  When do their actions increase efficiency? 
  9. What are some alternative approaches to paying tax auditors to make sure they focus their effort on where the payoff is the greatest?