13.3 Wages and Employment in an Imperfectly Competitive Labor Market
13.3 Wages and Employment in an Imperfectly Competitive Labor Market
Learning Objectives
By the end of this section, you will be able to:
- Define monopsony power
- Explain how imperfectly competitive labor markets determine wages and employment, where employers have market power
In the chapters on market structure, we observed that while economists use the theory of perfect competition as an ideal case of market structure, there are very few examples of perfectly competitive industries in the real world. What about labor markets? How many labor markets are perfectly competitive? There are probably more examples of perfectly competitive labor markets than perfectly competitive product markets, but that doesn’t mean that all labor markets are competitive.
When a job applicant is bargaining with an employer for a position, the applicant is often at a disadvantage—needing the job more than the employer needs that particular applicant. John Bates Clark (1847–1938), often named as the first great American economist, wrote in 1907: “In the making of the wages contract the individual laborer is always at a disadvantage. He has something which he is obliged to sell and which his employer is not obliged to take, since he [that is, the employer] can reject single men with impunity.”
To give workers more power, the U.S. government has passed, in response to years of labor protests, a number of laws to create a more equal balance of power between workers and employers. These laws include some of the following:
- Setting minimum hourly wages
- Setting maximum hours of work (at least before employers pay overtime rates)
- Prohibiting child labor
- Regulating health and safety conditions in the workplace
- Preventing discrimination on the basis of race, ethnicity, gender, sexual orientation, and age
- Requiring employers to provide family leave
- Requiring employers to give advance notice of layoffs
- Covering workers with unemployment insurance
- Setting a limit on the number of immigrant workers from other countries
Table 13.9 lists some prominent U.S. workplace protection laws. Many of the laws listed in the table were only the start of labor market regulations in these areas and have been followed, over time, by other related laws, regulations, and court rulings.
|
Law |
Protection |
|
National Labor- Management Relations Act of 1935 (the “Wagner Act”) |
Establishes procedures for establishing a union that firms are obligated to follow; sets up the National Labor Relations Board for deciding disputes |
|
Social Security Act of 1935 |
Under Title III, establishes a state-run system of unemployment insurance, in which workers pay into a state fund when they are employed and received benefits for a time when they are unemployed |
|
Fair Labor Standards Act of 1938 |
Establishes the minimum wage, limits on child labor, and rules requiring payment of overtime pay for those in jobs that are paid by the hour and exceed 40 hours per week |
|
Taft-Hartley Act of 194