CRITICAL THINKING QUESTIONS
- Other than the demand for labor, what would be another example of a “derived demand?”
- Suppose that a 5% increase in the minimum wage causes a 5% reduction in employment. How would this affect employers and how would it affect workers? In your opinion, would this be a good policy?
- Under what circumstances would a minimum wage be a non-binding price floor? Under what circumstances would a living wage be a binding price floor?
- Why are the factors that shift the demand for a product different from the factors that shift the demand for labor? Why are the factors that shift the supply of a product different from those that shift the supply of labor?
- What determines the demand for labor for a firm operating in a perfectly competitive output market?
- What determines the demand for labor for a firm with market power in the output market?
- What is a labor union?
- Why do employers have a natural advantage in bargaining with employees?
- What are some of the most important laws that protect employee rights?
- How does the presence of a labor union change negotiations between employers and workers?
- What is the long-term trend in American union membership?
- Would you expect the presence of labor unions to lead to higher or lower pay for worker-members? Would you expect a higher or lower quantity of workers hired by those employers? Explain briefly.
- What are the main causes for the recent trends in union membership rates in the United States? Why are union rates lower in the United States than in many other developed countries?
- What is a bilateral monopoly? How does a bilateral monopoly affect the equilibrium wage and employment levels compared to a perfectly competitive labor market?
- Describe how the earnings gap between men and women has evolved in recent decades.
- Describe how the earnings gap between blacks and whites has evolved in recent decades.
- Does a gap between the average earnings of men and women, or between whites and blacks, prove that employers are discriminating in the labor market? Explain briefly.
- Will a free market tend to encourage or discourage discrimination? Explain briefly.
- What policies, when used together with anti-discrimination laws, might help to reduce the earnings gap between men and women or between white and black workers?
- Describe how affirmative action is applied in the labor market.
- What factors can explain the relatively small effect of low-skilled immigration on the wages of low-skilled workers?
- How would you expect immigration by primarily low-skill workers to affect American low-skilled workers?
- What is the marginal cost of labor for a firm that operates in a competitive labor market? How does this compare with the MCL for a monopsony?
- Given the decline in union membership over the past 50 years, what does the theory of bilateral monopoly suggest will have happened to the equilibrium level of wages over time? Why?
- Are unions and technological improvements complementary? Why or why not?
- If it is not profitable to discriminate, why does discrimination persist?
- If a company has discriminated against minorities in the past, should it be required to give priority to minority applicants today? Why or why not?
- If the United States allows a greater quantity of highly skilled workers to enter the country, what will be the impact on the average wages of highly skilled employees?
- If all countries eliminated all barriers to immigration, would global economic growth increase? Why or why not?
- Predict how each of the following events will raise or lower the equilibrium wage and quantity of oil workers in Texas. In each case, sketch a demand and supply diagram to illustrate your answer.
- The price of oil rises.
- New oil-drilling equipment is invented that is cheap and requires few workers to run.
- Several major companies that do not drill oil open factories in Texas, offering many well-paid jobs outside the oil industry.
- Government imposes costly new regulations to make oil-drilling a safer job.
