Lecture Labour market economics: Chapter 10 - Dwayne Benjamin, Morley Gunderson, Craig Riddell

Chapter 10 - Wage structures across markets. In this chapter, we will address the following questions: Why do wages vary across markets? Are public sector workers overpaid? Why are wages lower in some provinces? Are wages higher in large firms? Which industries and occupations provide the highest wages?

Chapter Ten Wage Structures Across Markets  Created by: Erica Morrill, M.Ed           Fanshawe College © 2002 McGraw-Hill Ryerson Ltd Chapter 10-1 Chapter Focus  Why wages vary across markets?  Are public sector workers overpaid?  Why are wages lower in some provinces?  Are wages higher in large firms?  Which industries and occupations provide the highest wages? © 2002 McGraw­Hill Ryerson Ltd Chapter 10­2 Wage Structure Determinants Occupation  Industry  Region  Large vs Small firms  Men vs Women  Race or ethnicity  Immigrant status  Union status  Public vs Private Sector  © 2002 McGraw­Hill Ryerson Ltd Chapter 10­3 Earnings Function  Individual (log) wages depend on  formal schooling  labour market work experience  unobserved ability or luck  Coefficients on schooling and experience can be interpreted as rates of return © 2002 McGraw­Hill Ryerson Ltd Chapter 10­4 1999 Census  Pure regional wage differential  Occupational premiums  Industry premiums © 2002 McGraw­Hill Ryerson Ltd Chapter 10­5 Theoretical Issues  Compensating differentials  Immobility across sectors  Short run vs Long run  Unobserved heterogeneity © 2002 McGraw­Hill Ryerson Ltd Chapter 10­6 Occupational Wage Structures  The wage structure between various occupations or occupation groups  23 two-digit major groups  16 occupational classifications © 2002 McGraw­Hill Ryerson Ltd Chapter 10­7 Occupational Wage Differential Figure 10.1 Unskilled labour Skilled Labour Ss Ws Su Wu Du Ds Ns Nu © 2002 McGraw­Hill Ryerson Ltd Chapter 10­8 Interoccupational Wage Differentials  Compensation for     Short run adjustments   nonpecuniary differences human capital investment endowed skills demand factors Non Competitive Factors  occupational licensing, regulation on entry, unions and legislation on wages © 2002 McGraw­Hill Ryerson Ltd Chapter 10­9 Regional Wage Structures  Reasons   Compensating differences   cost of living, remoteness, climate, nonprice externalities; pollution, congestion Short run factors   geographic preferences induce mobility to encourage long run equilibrium Noncompetitive factors  cost of moving, artificial barriers and public policies Chapter 10­ © 2002 McGraw­Hill Ryerson Ltd 10 Migration Decision  Geographic mobility will occur if marginal benefit exceed marginal costs  Factors influencing mobility  Age  Unemployment  Business rates cycle  Distance  Cultural differences Chapter 10­ © 2002 McGraw­Hill Ryerson Ltd 11 Interindustry Wage Differentials  Average industry wage reflects a variety of factors  Occupational composition  Personal characteristics  Regional domination  Pure industry wage differentials are difficult to calculate Chapter 10­ © 2002 McGraw­Hill Ryerson Ltd 12 Interindustry Wage Differentials  Nonpecuniary aspects:   Short run demand factors   unpleasant or unsafe work conditions, seasonal or cyclical employment reallocation, technology change,free trade and global competition Noncompetitive factors  monopoly rents,wage laws,unions and licensing Chapter 10­ © 2002 McGraw­Hill Ryerson Ltd 13 Wages  Firms may pay wages above market rate to  improve morale  reduce turnover  elicit effort  discourage unionization  establish queue of applicants Chapter 10­ © 2002 McGraw­Hill Ryerson Ltd 14 Efficiency Wages  Productivity-enhancing wages  Payment of efficiency wages may differ by industry  Voluntarily paid by the firm  Rationale for policies designed to protect “good jobs” Chapter 10­ © 2002 McGraw­Hill Ryerson Ltd 15 Interfirm Wage Differentials  Nonpecuniary  poor factors working conditions  Short run demand increases  Noncompetitive conditions  monopoly position in the product market  union in the labour market  pay efficiency wages Chapter 10­ © 2002 McGraw­Hill Ryerson Ltd 16 Public vs Private Sector Wage Differentials  Nonpecuniary  job security, fringe benefits and political visibility  Short run factors  reflect a short run disequilibrium  Noncompetitive factors  political constraint, monopsony, inelastic demand and unionization Chapter 10­ © 2002 McGraw­Hill Ryerson Ltd 17 End of Chapter Ten © 2002 McGraw-Hill Ryerson Ltd Chapter 10-18 ... © 2002 McGraw­Hill Ryerson Ltd Chapter 10 7 Occupational Wage Differential Figure 10. 1 Unskilled labour Skilled Labour Ss Ws Su Wu Du Ds Ns Nu © 2002 McGraw­Hill Ryerson Ltd Chapter 10 8 Interoccupational... monopsony, inelastic demand and unionization Chapter 10 © 2002 McGraw­Hill Ryerson Ltd 17 End of Chapter Ten © 2002 McGraw-Hill Ryerson Ltd Chapter 1 0- 18 ...  Noncompetitive conditions  monopoly position in the product market  union in the labour market  pay efficiency wages Chapter 10 © 2002 McGraw­Hill Ryerson Ltd 16 Public vs Private Sector