1	Chapter 6: Wage Determination and the Allocation of Labor
2	"1." 1. Theory of a Perfectly Competitive Labor Market
3	Perfectly Competitive Labor Market Perfectly competitive labor markets have the following characteristics: Large number of firms trying to hire an identical type of labor. Numerous qualified people independently offering their services. Neither firms nor workers have control over the market wage. Perfect, costless information and labor mobility
4	Market Labor Supply
5	Wage and Employment Determination
6	Labor Supply Determinants Other wage rates If wages in other occupations rise (fall), then labor supply will fall (rise). Nonwage income If nonwage income rises (falls), then labor supply will fall (rise) Preferences for work versus leisure If preferences for work increase (decrease), then labor supply will increase (decrease).
7	Labor Supply Determinants Nonwage aspects of job If the the nonwage aspects of a job improve (worsen), then labor supply will increase (decrease) Number of qualified suppliers An increase (decrease) in the number of qualified workers will increase (decrease) labor supply.
8	Labor Demand Determinants Product demand Changes in product demand that increase (decrease) the product price, will increase (decrease) labor demand. Productivity An increase (decrease) in productivity will increase (decrease) labor demand, assuming that it does not cause an offset in the product price.
9	Labor Demand Determinants Prices of other resources For gross substitutes, an increase (decrease) in the price of a substitute input will increase (decrease) labor demand. For gross complements, an increase (decrease) in the price of a complement input will decrease (increase) labor demand.
10	Labor Demand Determinants Prices of other resources For pure complements, an increase (decrease) in the price of a complement input will decrease (increase) labor demand. Number of employers An increase (decrease) in the number of employers will increase (decrease) labor demand.
11	Changes in Labor Demand
12	Changes in Labor Supply
13	Wage and Employment for a Perfectly Competitive Firm
14	Allocative Efficiency An efficient allocation of labor is obtained when society gets the largest possible (amount) VALUE of output from a given amount of labor. Efficient allocation requires the VMP of labor for each product be equal to the price of labor. Perfect competition in the product and labor markets creates allocative efficiency.
15	"Questions for Thought:" Questions for Thought:
16	"2." 2. Wage and Employment Determination: Monopoly in the Product Market
17	Wage and Employment for a Monopolist
18	"Questions for Thought:" Questions for Thought:
19	"3." 3. Monopsony
20	Monopsony A monopsony is a labor market where a single firm is the sole hirer of a particular type of labor. A monopsonist has control over the wage rate workers are paid by hiring more or less labor.
21	Monopsony
22	Wage and Employment for a Monopsonist
23	"4." 4. Unions and Wage Determination
24	Unions and Wages Unions can increase the wages of their members by: Increasing the demand for union labor. Restricting the supply of labor. Bargaining for an above equilibrium wage.
25	Increasing Labor Demand
26	Methods to Increase Union Labor Demand Increasing product demand Lobbying for tariffs on foreign goods. Enhancing productivity Participation in labor-management committees on productivity Influencing the prices of related inputs Lobbying for minimum wage hikes as they raise the price of substitutable less-skilled, nonunion labor.
27	Methods to Increase Union Labor Demand Davis-Bacon Act, which requires federal contractors pay the “prevailing” union wage scale. Increasing the number of employers Attempts to pass requirements for domestic content for autos sold in the U.S.
28	Changes in Labor Supply
29	Methods to Decrease Labor Supply Reducing the number of qualified suppliers of labor Lobby for laws that reduce immigration, child labor, and length of the workweek. Limit entry into occupation through long apprenticeships. Occupational licensing which are laws that require practitioners to meet certain requirements.
30	Methods to Decrease Labor Supply Raising nonwage income Lobby to increase nonwage income sources such as Social Security in order to decrease labor supply.
31	Bargaining for an Above-Equilibrium Wage
32	"Questions for Thought:" Questions for Thought:
33	"5." 5. Bilateral Monopoly
34	Bilateral Monopoly in the Labor Market
35	"6." 6. Wage Determination: Delayed Supply Responses
36	Cobweb Model
37	Evidence Some evidence exists for cobweb adjustments in markets such as lawyers and engineers. Critics argue that: Students make choices on the basis of the lifetime earnings stream rather than starting salaries. Students make a forecast of the long run outcome of a change in demand or supply and make the right choice.
38	End Chapter 6