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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- Factor of production
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An input used in production: labor, capital, land, or entrepreneurship.- Wage
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The payment made to labor per unit of time worked, typically expressed as an hourly rate, salary, or piece rate.- Competitive labor market
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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)
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Many firms, many workers, homogeneous labor, perfect information, free entry and exit, and no barriers to mobility.- Marginal product of labor (MPL)
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The additional output produced by hiring one more worker, holding all other inputs constant.- Marginal revenue product of labor (MRPL)
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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)
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A firm hires workers up to the point where the wage equals the marginal revenue product of labor.- Labor supply
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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)
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The wage at which the quantity of labor supplied equals the quantity of labor demanded, clearing the market.- Reservation wage
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The minimum wage a worker will accept in order to take a job, below which they prefer not to work.- Monopsony
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A labor market with a single dominant buyer of labor (employer) facing many sellers (workers).- Monopsony power
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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
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Geographic isolation, job-specific skills, high switching costs, information asymmetry, or few alternative employers in a region.- Wage discrimination
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Paying different wages to workers for the same job based on characteristics like race, gender, age, or other traits unrelated to productivity.- Occupational licensing
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A legal requirement to obtain a government-issued license to work in a profession, which can restrict labor supply and raise wages for licensed workers.
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