Wage differentials and labour market imperfections

• In a perfectly competitive economy, what would happen to wage differences between professions?

  There would be no differences
• What are the two key assumptions about workers in perfectly competitive labor markets?

  Homogeneous and perfectly mobile
• According to the model of perfectly competitive labor markets, if lawyers earn more than train drivers, what would happen?

  Train drivers would become lawyers
• In a perfectly competitive labor market, what happens to the supply of labor in a high-paying profession when compared to a lower paying one?

  Supply increases
• How are wages equalized between two professions in a perfectly competitive labor market?

  Through shifts in labor supply
• What does the existence of wage differentials in the real world suggest about labor markets?

  They are not perfectly competitive
• Why is studying perfectly competitive labor markets useful if they don't exist in reality?

  It provides a benchmark
• What does understanding perfectly competitive labor markets allow us to do?

  Understand why wage differentials exist
• How many market imperfections are discussed as reasons for wage differentials?

  Five
• What is the first market imperfection that leads to wage differentials?

  Labor is not homogeneous
• What does it mean when it is said that labor is not homogeneous?

  Workers have different mrps
• What does differing suitability of workers for different jobs lead to?

  Different labor supplies
• What is another imperfection that contributes to wage differentials?

  Discrimination
• Despite anti-discrimination laws, why does discrimination still cause wage differentials?

  It still takes place
• What do perfectly competitive labor markets assume workers base their decisions on?

  Wages Full Stop
• What do workers consider in addition to wages when choosing a job?

  Non-monetary considerations
• If non-monetary considerations are fantastic, what happens to the supply of workers?

  Supply increases
• What are compensating wage differentials?

  Higher wages for tough conditions
• What is the relationship between pleasant working conditions and wages?

  More pleasant, lower wages
• What key assumption in perfectly competitive labor markets is often untrue?

  Perfect labor mobility
• What is occupational immobility?

  Workers lack needed skills
• How do qualifications and training periods affect wages?

  Push wages up
• What is the impact of large skills requirements on wages?

  Wages are pushed up
• What is geographical immobility of labor?

  Workers unwilling to move
• What is the result of workers being unwilling to move for higher wages?

  Persistent wage differences
• What kind of knowledge do perfectly competitive labor markets assume workers have?

  Perfect knowledge
• In reality, what is the state of workers' knowledge of market conditions?

  Knowledge may be imperfect
• What is another key market imperfection?

  Trade unions
• How do trade unions affect wages?

  Bargain for higher wages
• What is the relationship between trade union membership and bargaining power?

  More members, more power
• How does the existence of strong trade unions affect wage differentials?

  Increases differentials
• What is a monopsony?

  One dominant employer
• How do monopsonies affect wages?

  Drive down wages
• How does the presence of monopsonies contribute to wage differentials?

  Wages might be lower
• What causes wage differentials in the real world?

  Market imperfections
• How does perfect mobility of labor contribute to wage equalization in a perfectly competitive market?

  Workers move to higher paying jobs
• How do attractive non-monetary considerations impact labor supply and wages?

  Increase supply, decrease wages
• What impact do the extensive training requirements for surgeons have on their wages?

  Increases their wages
• How does a lack of perfect knowledge of market conditions affect wage differentials?

  Prevents workers from seeking better wages