Key Terms
Income in a market economy comes from two things
The quantity of resources you own and the value society places on those resources. For most people, that resource is lab
Marginal Product of Labor (MPL)
The additional output produced by adding one more worker hour to the production process.
Value of the Marginal Product of Labor (VMPL)
MPL multiplied by the price of the firm's output.
Monopsony
A labor market with only one employer; results in lower wages and lower employment than a competitive market.
Result
Lower wages and lower employment than a competitive labor market would produce. Workers have no alternatives, so they ac
How union wages work
Without a union, the market clears at equilibrium wage We and quantity Qe. The union uses bargaining power (threat of st
International comparison
Sweden has 82% union density; U.S. has 11.1%.
Bilateral monopoly
A labor market with a monopsony on the demand side and a union on the supply side; employment is lower than competitive
Discrimination in labor markets
When workers with the same education, experience, and skill receive different pay or different job opportunities because
Affirmative action
Active efforts by government or businesses to give special consideration to minorities in hiring or promotion to address
Reality
Roughly one-third of immigrants over 25 lack a high school diploma. Concentrated in low-skill jobs.
Estimated wage effect on native low-skill workers
Roughly a 1% decline per 10% increase in low-skill immigrant labor. Kept small partly by minimum wage laws and partly be
Fiscal effects
Immigration tends to be a net positive for federal tax revenue (income taxes, Social Security) but a net negative for st
DREAM Act
Proposed path to citizenship for undocumented immigrants brought to the U.S. before age 16.
First rule of labor markets
An employer will never pay a worker more than the value of the worker's marginal productivity to the firm.