20, 21 (earning and discrimination ; inequality)

Compensating differential

Diff in wages that arises to offset the nonmonetary characteristics of diff jobs

leaky bucket

admin costs of redistributing income ; ppl who lie about thier incometo chea tthe system ; labor supply is elasitc so redistributive taxes reduce labor supply 

libertarianism 

nozick -equality in opportunities is more important 

reason for percentage of children higher below poverty line than older adults in families 

social security system supports older adults quite well ; some critics say that perverse incentives not to leave poverty ; 

Examples

Roofers are paid more than other workers w similar education level bc nasty smell of tar and risk of accidents

Human capital

Accumulation of investments in people such as education and on-the-job training

Education as human capital

Most important type = education (represents expenditure of resources to raise futur eproductivity ; but connected to a specific person) — The differnece in wages between highly educated workers and less educated workers may be considered a compensating differential for the cost of acquiring human capital — Firms pay more for highly edcuated workers because workers have higher marginal products ; workers the suppliers of labor bear the cost of edcuation bc they expect a reward for doing so

Hypothesis on why the gap in earnings between skilled and unskilled workers widening

Both suggest demand for skilled labor has led to a corresponding change in wages of both groups, increasing inequality ; 1 - international trade - amount of trade with other countries has markedly increased. Imports risen signifcantly and exports as well. Bc unskilled labor is plentiful and cheap in many countries, us tends to import goods produced with unskilled labor and export those produced with skilled labor. ; 2 - technological change. Skill biased tech change

Alt view of education - signaling

Educational attainment as a way of sorting between high ability and lowa bility -> signal to prospective employers their productivity

Two views on predictions for policeis aiming to inc educational attainment

According to the human-capital view, increasing educational levels for all workers would raise all workers’ productivity and wages. According to the signaling view, education does not enhance productivity, so raising all workers’ educational levels would not affect wages.

Superstar phenomenon

"Superstars arise in markets with two characteristics:

● Every customer in the market wants to enjoy the services supplied by the best producers.

● The services are produced with a technology that makes it possible for the best producers to supply every customer at low cost."

Monopsony

"Market that has only one buyer

A monopsony in a labor market hires fewer workers than a competitive firm would ; by reducing the number of jobs available, the monopsony moves along the supply curve, reducing the wage it pays and increasing its profit. Both monopolists and monopsonists reduce economic activity in a market below socially optimal level.

In both monopsony and monopoly the existence of market power distorts the outcome and causes deadweight losses. Workers employed by monopsonies earn less that they would under competition

True monopsonies are rare"

Union

Worker association that bargains with employers over wages and working conditions

strike

Collective refusal to worj organized as a form of protests

Why might above equilibrium wages arise?

"1 - minimum wage law

2- market power of labor unions

3- theory of efficiency wages"

wages can be set artificially higher to incentivize workesr and attract talent

Minimum wage law

For some, especially least skilled, mininum wage laws raise wages above level they would have in unregulated labor market

Market power of labor unions

Unions can raise wages by organizing workers to withold thier labor by calling a strike 10-20% higher

Efficiecny wages

"Theory -> high wages inc worker productivity by reducing turnover, motivating greater effort and enticing superior candidates to apply to jobs

If such efforts are strong enough, firms may find it profitable to pay above eq level"

Above eq wages effect on labor market

Increase quantity of labor supplied and reduce quant of labor demanded. Creates surplus of labor unemployment

Discrimination

Offering of diff opportunities to similar individuals who differ only by race, ethnicity, gender, age, religion, sexual orientation or other personal characteristics

Role of differnece in human capital

Percentage in race with bachelor

Human capital as job experience

Women workers vs men (interrupting career to raise children)

Compensating differentials

Gender choose diff types of work

business owners who care only about making money are at an advan- tage when competing against those who also care about discriminating. As a result, firms that do not discriminate tend to replace those that do. In this way, competitive markets have a natural remedy for employer discrimination.

Discrimination by customers and governments

Competitive markets contain a natural remedy for employer dis- crimination. The entry of firms that care only about profit tends to eliminate discriminatory wage differentials. These differentials persist in competitive mar- kets when customers are willing to pay to maintain the discriminatory practice or when the government mandates it.

Statistical discrimination

discrimination that arises because an irrelevant but observable personal characteristic is correlated with a relevant but unobservable attribute

Percent by which earnings are lower for women workers

White: 19 %; Black: 10 %

Percent by which earnings are lower for black workers

Men 24%; Women 16%

Why might single minimum wage distort labor market for teens more than adult workers?

1 The value of the marginal product of labor is lower among teenagers than among adults. Thus, the minimum wage is more likely to be above the equilibrium wage for teenage labor than for adult labor. ; 2 The demand for teenage labor is more elastic than the demand for adult labor, so employers can more easily substitute away from teenage labor if the minimum wage in the teenage labor market is binding ; 3 The minimum wage primarily affects those individuals who are least skilled and least experienced, and these characteristics generally apply to teenagers.

Poverty rate

Percentage of population whose family income falls below absolute level called poverty line

Poverty line

Absolute level of income set by fed government for each family size below which a family is deemed to be in poverty

In kind transfers

Transfers given in the form of goods and services rather than cash

Life cycle

Regular pattern of income variation over person life

Permanent income

Normal income

Utilitarianism

Transitory vs permanent income

"A family’s ability to buy goods and services would then depend on its permanent income, which is its normal, or average, income over several years.

Annual may vary based on external factors"

utility

Measure of satisfaction

Liberal contractarianism

Choose policies deemed just as evaluated by impartial observers behind veil of ignorance

Maximin criterion

Claim gov should aim to maximize the well being of worst off person in society

Social insurance

government policy aimed at protecting people against the risk of adverse events

Libertarianism

the political philosophy according to which the government should punish crimes and enforce voluntary agreements but not redistribute income

Welfare

government programs that supplement the incomes of the needy

Negative income tax

a tax system that collects revenue from high-income households and gives subsidies to lowincome households

Minimum wage laws

Higher unemployment among those groups of workers affected by minimum wage ; magnitude depends on ELASTICITY OF LABOR DEMAND

welfare

Gov programs that supplement the incomes of the needy

Examples of welfare

Temporary assistance for needy families TANF - families w children and no adult able to support family ;;;;; Supplemental security income (SSI) - low income bc sickness or disability

Common crit of public assistance programs

they create perverse incentives for those who might qualify. For example, it is said that these programs encourage families to break up (because many families qualify for financial assistance only if the father is absent) and encourage women to give birth out of wedlock (because many poor single women qualify for assistance only if they have children).

Rebuttal

trends do not support the view that the decline of the two-parent family is connected to public assistance programs. The reduction in public assistance benefits in 1996 did not lead to a decline in the percentage of children living with only one parent.

Negative income tax

Tax system collect revenue from high income households and subsidies to low income households

Universal basic income

Earned income tax credit (EITC)

Allow poor working families to receive income tax refunds greater than taxes they paid during year ; applies only to working poor so doesnt discourage recipients from working as other antipoverty programs may ; but also doesnt help alleviate poverty due to unemployment sickness or other inability to work

In kind transfers

ex) SNAP ; medicaid -society can be more confident that it is not supporting such addictions but instead providing what the recipients truly need.

Antipoverty programs and work incentives

Because financial assistance declines as income rises, the poor often face very high effective marginal tax rates, which discourage them from escaping poverty on their own.

Ways to address disincentive problem

Reduce benefit to recipients more gradually as income rise OR workfare

permanent income

average income expected to earn over long periods of time ; better measure living standards bc less affected by trasnitory events

transitory income

temp unexpected changes in income

stock

quantity measured at one time single amount (US debt)

flow

over period of time (rate)

median household income

85000

why has inequality increased

globalization, tech change, winner take all markets

output effect

revenue effect

more q = more r

more q = less p = less r