How wages and other factor prices are determined in competitive and imperfect labor markets. Front: the term or concept. Back: a plain-language definition.
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- Labor market
- The market where workers supply labor and firms demand labor, with wages as the price that equilibrates supply and demand.
- Factor of production
- An input used in production: labor, capital, land, or entrepreneurship.
- Wage
- The payment made to labor per unit of time worked, typically expressed as an hourly rate, salary, or piece rate.
- Competitive labor market
- A labor market with many buyers and sellers of labor, no single firm can set wages, and workers move freely between jobs.
- Perfect competition in labor markets (conditions)
- Many firms, many workers, homogeneous labor, perfect information, free entry and exit, and no barriers to mobility.
- Marginal product of labor (MPL)
- The additional output produced by hiring one more worker, holding all other inputs constant.
- Marginal revenue product of labor (MRPL)
- The additional revenue a firm earns from hiring one more worker, equal to the marginal product times the price of output.
- Firm's demand for labor (competitive firm)
- A firm hires workers up to the point where the wage equals the marginal revenue product of labor.
- Labor supply
- The quantity of labor that workers are willing to supply at each wage rate, determined by preferences, opportunity cost, and demographics.
- Equilibrium wage (competitive market)
- The wage at which the quantity of labor supplied equals the quantity of labor demanded, clearing the market.
- Reservation wage
- The minimum wage a worker will accept in order to take a job, below which they prefer not to work.
- Monopsony
- A labor market with a single dominant buyer of labor (employer) facing many sellers (workers).
- Monopsony power
- An employer's ability to influence the wage rate downward by restricting the quantity of labor demanded, reducing wages below the competitive level.
- Sources of monopsony power
- Geographic isolation, job-specific skills, high switching costs, information asymmetry, or few alternative employers in a region.
- Wage discrimination
- Paying different wages to workers for the same job based on characteristics like race, gender, age, or other traits unrelated to productivity.