Dominick Salvatore Schaums Outline of Microeconomics, 4th edition Schaums Outline Series 2006

CHAP. 13] INPUT PRICING AND EMPLOYMENT 309
13.30 (a) What causes wage differences? (b) What are equalizing differences? How do these give rise to wage
differences? (c) What are noncompeting groups? How do they give rise to wage differences? (d ) What
are imperfect labor markets? How do they give rise to wage differences?
(a)
Wages differ among different categories of people and jobs because of (1) equalizing differences, (2) the existence
of noncompeting occupational groups, and (3) imperfections in labor markets.
(b) Equalizing differences are wage differences that serve to compensate workers for nonmonetary differences
among jobs. That is, jobs requiring equal qualifications may differ in attractiveness and higher wages must
be paid to attract and retain workers in the more unpleasant jobs. For example, garbage collectors receive
higher wages than porters.
(c) Noncompeting groups are occupations which require certain capacities, skills, training, and education and,
therefore, receive different wages. That is, labor is not a single productive resource but many different
resources, each not in direct competition with others. Thus, doctors form one group which is not in direct competition
with other groups of workers. Lawyers, accountants, electricians, bus drivers, etc., belong to other
separate, noncompeting groups. There is a particular wage rate structure for each of these noncompeting
groups depending on the abilities, skills, and training required for each occupation. To be noted is that
some job mobility among competing groups may be possible (for example, when an electrician becomes
an electronics engineer by going to night school). However, mobility is generally limited.
(d ) An imperfect labor market is one in which there is some lack of information on job opportunities and wages;
where some workers are unwilling to move to other areas and jobs in order to take advantage of higher wages;
and where union power, minimum wage laws, and monopsony power exist. Any of these circumstances causes
some differences in wages for jobs which are exactly alike and require equal capacities and skills.
13.31 (a) Sketch a graph showing the three main methods that unions can use to raise wages. (b) To which of
these methods is the imposition of a minimum wage by the government most similar? What are the pros
and cons of having minimum wage laws? (c) Have unions raised wages in the United States?
(a)
Panel A of Fig. 13-26 shows that a union can increase union wages from w to w 0 and employment from OA to
OB by increasing D L to DL 0 (for example, by lobbying to restrict imports and advertising to buy the “union
label”). This is the most desirable but also the least effective method. Panel B shows that a (craft) union
can increase wages from w to w 0 by reducing S L to S 0 L (by forcing firms to hire only union members and
then limiting the number of union members with high initiation fees, requirements of long apprenticeships,
etc.). However, employment falls from OA to OC. Panel C shows that an industrial union might increase
the wage from w to w 0 by direct bargaining with employers. However, employment falls from OA to OG
and GH (¼E 0 F) workers are unable to find jobs. The actual loss of employment resulting from a given
rise in wages depends on the elasticity of D L .
Fig. 13-26
(b)
If government imposed a minimum wage of w 0 , the result would be the same as the union negotiating a wage
of w 0 shown in panel C. This is particularly beneficial to previously low paid workers near the poverty level.
With higher wages and incomes, the health and vigor of these workers may increase and result in greater productivity.
Imposing or raising a minimum wage can also have a “shock effect” on business and induce