Explain how efficiency wages, labor unions, and minimum wage laws affect labor markets
What will be an ideal response?
Efficiency wages are higher-than-market wages that a firm pays to motivate workers to be more productive. This results in the quantity of labor supplied to exceed the quantity of labor demanded, which leaves a surplus of labor and therefore results in unemployment.
Labor unions typically are able to bargain for a wage which is above the market level. The higher wage results in unionized industries hiring fewer workers. The more workers that belong to a union, the greater the impact that union wage bargaining will have on the unemployment rate.
Minimum wages which are set above the market wage will result in the quantity of labor supplied to exceed the quantity of labor demanded, which leaves a surplus of labor and therefore results in unemployment. The impact on the unemployment rate will depend on how many workers in a labor market actually work for minimum wage. The more workers being paid minimum wage, the larger the impact on the unemployment rate.
You might also like to view...
Which of the following will restore an economy to full employment, if it is operating below full employment due to a decrease in net exports?
A) A reduction in the investment in the economy B) A reduction in the demand for goods and services in the economy C) A decrease the real exchange rate D) An increase in the interest rate
A minimum wage set above the equilibrium wage will ________ the quantity of labor demanded and ________ the quantity of labor supplied
A) increase; increase B) increase; decrease C) decrease; increase D) decrease; decrease E) not change; not change
Supporters of a floating exchange rate cited all of the following as advantages over the Bretton Woods system EXCEPT
A) each country would be able to choose its own long run inflation rate. B) parity changes and speculative attacks would no longer be possible. C) countries would be forced to work cooperatively in deciding monetary policy. D) exchange rates would be set symmetrically in foreign markets rather than by government decision. E) governments would not need to export inflation to decrease domestic unemployment.
Living wage laws have been instituted at the state level and affect a large number of jobs
Indicate whether the statement is true or false