3.5.3 Wage determination in competitive and non-competitive markets

• What characterizes a competitive labour market?

  Many firms and workers
• A non-competitive labour market includes imperfections such as monopsony power or trade unions
• A competitive labour market has many firms, while a non-competitive market has few or one.
• What influences wage determination in a non-competitive labour market?

  Firms or trade unions
• In a competitive labour market, wages are determined by the intersection of supply and demand
• A higher supply of labour decreases wages in a competitive labour market.
• How does higher worker productivity affect wages in a competitive labour market?

  Increases wages
• Higher skills and education in workers lead to an increase in their wages
• Steps in wage determination in a competitive labour market

  1️⃣ Firms compete for workers

  2️⃣ Workers compete for jobs

  3️⃣ Labour supply and demand intersect

  4️⃣ Market equilibrium determines wages
• What type of labour mobility is characteristic of a competitive labour market?

  High
• In a non-competitive labour market, the number of firms is typically few or one
• In a competitive labor market, wages are determined by market forces such as supply and demand
• Labor mobility is high in non-competitive labor markets.

  False
• Match the characteristic with the type of labor market:

  Many firms ↔️ Competitive Labor Market

  Low labor mobility ↔️ Non-Competitive Labor Market
• Non-competitive labor markets often have imperfections such as monopsony power or trade unions
• Wages in non-competitive labor markets are influenced by firms or trade unions.
• List the factors influencing wage rates in competitive labor markets in order of their impact on wages:

  1️⃣ Labor Demand (Higher demand increases wage)

  2️⃣ Productivity (Higher productivity increases wage)

  3️⃣ Skills and Education (Higher skills increase wage)

  4️⃣ Labor Supply (Higher supply lowers wage)
• What determines the market equilibrium wage in a competitive labor market?

  Supply and demand
• In the labor market, supply refers to the number of workers willing and able to work at various wage levels.
• Wage rates are determined by the market equilibrium where supply and demand intersect
• Match the factor with its effect on wage rates:

  Increased Demand ↔️ Raises wage rates

  Increased Supply ↔️ Lowers wage rates
• In non-competitive labor markets, wages are solely determined by market forces.

  False
• What is the key characteristic of a monopsony in a non-competitive labor market?

  Single employer dominates
• Trade unions negotiate for higher wages on behalf of workers
• Match the type of labor market with its characteristic:

  Competitive Labor Market ↔️ Market forces determine wages

  Non-Competitive Labor Market ↔️ Strong unions influence wages
• In the labor market, demand represents the quantity of workers firms wish to hire at different wage rates.
• What is the point where supply and demand intersect in the labor market called?

  Market equilibrium
• Increased demand for labor leads to higher wage rates
• Firms in a monopsony set lower wages to maximize profit.
• What is the role of trade unions in wage determination?

  Collective bargaining
• A minimum wage ensures wages meet a legal floor
• Monopsony power can depress wages below competitive levels.
• What are two common forms of government intervention in wage rates?

  Minimum wage and subsidies
• Minimum wage laws set a legal floor for wages
• High minimum wage laws may lead to job losses for low-skilled workers.
• Wage subsidies encourage increased employment by reducing labor costs
• Employers must pay either the minimum wage or the market wage, whichever is higher.