Labor Market Equilibrium

Flashcards about policy application, mandated benefits, labor market equilibrium, compensating wage differentials

Mandated Benefits

Government ensures workers receive benefits by mandating firms to provide them, affecting equilibrium wages and employment.

Impact of Mandated Benefit

The mandated provision of a benefit results in a parallel downward shift of the demand curve.

Labor market equilibrium with despised mandated benefits

If workers attach no value to a mandated benefit, the resulting equilibrium is similar to enacting a payroll tax.

Labor market equilibrium with valued mandated benefits

If workers value a mandated benefit (B < C), both the demand and supply curves shift, leading to a new equilibrium with potentially higher compensation and lower costs compared to a payroll tax.

Obamacare (ACA)

The Patient Protection and Affordable Care Act introduced regulations, mandates, subsidies, penalties, and taxes into the health insurance marketplace, which can affect labor market outcomes.

ACA's potential labor market effects

Can lead to changes in market wage and number of workers employed; increased health insurance premiums can reduce employment, hours worked, and wages.

ACA programs

Employer mandate, individual mandate, subsidies for low-income individuals, and expansion of Medicaid eligibility.

Labor Market Impacts of Immigration

Immigration can shift the labor supply curve, increasing total employment but reducing wages.

Compensating Wage Differentials

Firms with unpleasant working conditions must offer offsetting advantages (such as higher wages) to attract workers.

Utility Function (Risky Jobs)

Workers care about wage (w) and probability of injury (π), expressed as Utility = f(w, π).

Marginal Utility of Risk

Change in utility of injury, holding income constant. It is assumed to be negative.

Worker's Reservation Price

The amount of money it would take to bribe her into accepting the risky job.

Supply Curve to Risky Jobs

Shows how many workers are willing to work at the risky job as a function of the wage differential between the risky job and the safe job.

Firm's Decision (Safe vs. Risky)

A profit-maximizing firm offers a risky environment if the per-worker productivity gain exceeds the additional labor cost.

Equilibrium with fully informed workers

The model results show adequate compensation for the risks that workers encounter on the job where all workers dislike risk.

Isoprofit Curve

All points along an isoprofit curve yield the same profits. It is costly to produce safety.

Hedonic Wage Function

Summarizes the relationship between the wage and job characteristics. Upward sloping because workers dislike job risk.