Question

Question

  
1. Discuss how customer discrimination can result in wage differentials between two groups of workers. (6)

2. List three types of labour market immobilities and give an example for each. (6)

Answer 1

Answer1: If majority’ customers are prejudiced (i.e. discriminate against) ‘minority’ workers, their perceived price of a good sold by minority workers is utility-adjusted with the discrimination coefficient. They act as if p equaled p(1+d)and buy less of the good. Firms might get around this by putting ‘majority’ workers in customer contact jobs. Competition for ‘minority’ workers might then result in equal wages for equally productive majority and minority workers. When a firm cannot hide minority workers, customer discrimination can have an adverse impact on their wages.The firm has to charge a lower price for the good to compensate the prejudiced customers for their disutility. The minority workers have to compensate the firm for this by accepting a lower wage.

Answer2: Labor mobility refers to the ease with which laborers are able to move around within an economy and between different economies.

There are

1) Geographic immobility refers to barriers people moving from one area to another to find work. It may due to family and social ties, migrational control or cultural and language barriers

Eg: Worker unable to move from Egypt to Netherlands due to family ties.

2) Occupational immobility occurs when there is hindrance in mobility of factor of production between different sectors of economy.

Eg: Workers made redundant in the Automotive industry or in heavy engineering may find it difficult to find a new job.